Splits :: The Coca-Cola Company KO
Because there are 10% more shares outstanding, each share should drop in value. They both serve to reduce the market price per share and increase the number of shares issued and outstanding. A stock dividend is generally declared in terms of a percentage. For example, law firm bookkeeping in a 5% stock dividend, you will receive one additional share for every 20 shares you already own. In a 2-for-1 split, you receive one additional share for every share you own (so that you end up owning two shares for every one you owned before the split).
Both result in an increase in the number of outstanding shares in the company without affecting the total market value. The answer is not in the financial statement impact, but in the financial markets. Since the same company is now represented by more shares, one would expect the market value per share to suffer a corresponding decline. For example, a stock that is subject to a 3-1 split should see its shares initially cut in third. The benefit to the shareholders comes about, in theory, because the split creates more attractive opportunities for other future investors to ultimately buy into the larger pool of lower priced shares. For example, a 2-for-1 stock split is similar to a 100% stock dividend.
How did Apple’s 7-for-1 stock split affect its total stockholders’ equity?
A decision for a stock split may be taken by the board of directors or by the vote of shareholders; thus, this can be a time-consuming and costly exercise. The main advantage of stock splits is its ability to facilitate improved liquidity of shares. Following a stock split, shares are more affordable to the investors due to the reduced share price. Stock splits are practised by many large scale companies such as Coca-Cola and Wal-Mart.
- Conceal the large profit distribution as with the stock split, per share earnings fall.
- This decrease occurs because more shares are outstanding with no increase in total stockholders’ equity.
- A cash dividend is one in which the company distributes a definite amount of money to each shareholder for each share owned.
- Only the par value and the number of issued and outstanding shares are different.
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- If a corporation had 100,000 shares outstanding, a stockholder who owned 1,000 shares owned 1% of the corporation (1,000 ÷ 100,000).
- However, every stockholder’s number of shares has doubled—causing the value of each share to be worth approximately half of what it was before the split.
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What are the benefits of a stock split?
For example, if a stock split happens, the prior year’s earnings per share figure should be altered to account for the larger number of shares. However, when financial statements are issued, the information regarding the stock split and the new par value per share must be disclosed. In particular, the corporation must obtain a change in the par value (if any) and an increase in the number of authorized shares. Approval must be obtained not only from the state authority but also from the stockholders through a vote. Oppositely, Stock Split is another action which the company takes, in which the number of shares held by a shareholder gets multiplied. In this, what exactly happens is that the company does not issue any shares, rather the outstanding shares are split or divided into a definite ratio.
The Purpose of both Stock dividends vs Stock Splits is totally different from each other. Whenever these terms are used, one should not treat them as the same should be careful. For best practices on efficiently downloading information from SEC.gov, including the latest EDGAR filings, visit sec.gov/developer. You can also sign up for email updates on the SEC open data program, including best practices that make it more efficient to download data, and SEC.gov enhancements that may impact scripted downloading processes. Please declare your traffic by updating your user agent to include company specific information. You are leaving wellsfargo.com and entering a website that Wells Fargo does not control.