A stock split is a corporate action where a company divides its existing shares into multiple shares, increasing the total number of shares outstanding while proportionally decreasing the price per share. For example, in a 2-for-1 split, each existing share becomes two shares, and the stock price is halved.
The fundamental value of your ownership doesn't change—if you owned 100 shares worth $100 each before a 2-for-1 split, you'd own 200 shares worth $50 each afterward, maintaining your $10,000 total investment. Companies typically split shares to make stock prices more affordable for retail investors, improve trading liquidity, and make the stock appear more attractive psychologically.
Reverse splits work oppositely: multiple shares combine into fewer shares at a higher price per share. These are often used by struggling companies to boost their stock price above exchange listing minimums.
Splits don't affect a company's market capitalization, earnings, or underlying business fundamentals. They're purely mechanical adjustments to share structure. Dividend payments and earnings per share are adjusted accordingly to reflect the new share count, so the economic impact on shareholders remains neutral. Stock splits are common among established companies and don't inherently signal positive or negative news about the business itself.