After the company goes public and starts having shares traded in the market, it must pay attention to strategies that favor the investment and the negotiation of the papers.
For those who invest, knowing the process is important to understand what it represents and in which decisions it can interfere.
What is a stock split?
In the stock market there are several processes that are performed by companies.
One of them is called a stock split. It consists in dividing the total number of shares of a company into a larger number, changing the price of each one.
How does the stock split work?
In terms of how it works, a stock split consists in dividing one share into several shares. Thus, the unit price is distributed among the new shares created.
It means that each share of $50.00 will become 5 shares of $10.00.What does this affect the investor's equity? In relation to the amount invested, nothing.
An investor who has 1,000 shares, for example, will have 5,000 shares. However, the total amount of the investment will remain at $50,000.
In other words, although the investor will have 5 times more shares, he will not have a higher value or a higher stake in the company.
This is because the total number of outstanding shares will grow in the same proportion. Simple, isn't it?
What is this process for?
Are you wondering why a company conducts a stock split? Then you should know that one of the main reasons involves the liquidity of the assets.
With a lower price, the shares become more accessible to the small investor and are traded more.
This increases liquidity, making it easier to buy and sell the papers. This process can also stimulate more investments.
When does a stock split take place?
When it reaches a level that is considered high, the issue is taken to the administrative board and, if it is approved, the step takes place.
Thus, approval by the administrative council is required. With the favorable decision about the split and the proportion, a date is set to execute the change and an information to the market is made.
How to identify a stock split?
As the stock split needs to be communicated to the market, identifying it is quite simple.
Relevant facts are released by the companies that make up the stock market, so following this news allows you to know about the process.
It is also possible to research the company's history to find out whether there have been any stock splits before investing in it, for example.
Is it worth investing after the stock split?
The truth is that it depends on your analysis of the company and its stock.
After all, as we have seen, the split does not change the value and quality of the companies. It only interferes in the price of the papers.
Thus, it is still important to evaluate the fundamentals of the company and consider your profile and your goals to understand whether the investment makes sense.
