What is the effect of a stock split on share price?
The price depends on the stock split ratio. The most common split ratios are 2:1 or 3:1, which means that after the split, you will have two or three shares respectively, for every share you held beforehand.
For example, if the stock’s face value is ₹10, and there is a stock split in the ratio of 2:1, then the face value will change to ₹5. If you owned 1 share of ₹10 before the split, you would now own 2 shares of ₹5 after the split. Here’s the breakdown for this example:
| Split ratio(A) | Old face value(B) | Shares held before split(C) | Share price before split(D) | Investment value before split (C*D) | New face value(A*B) | Shares held after splitE =(C/A) | Share price after splitF =(D/A) | Investment value after split(E*F) |
| 1:2 | 10 | 100 | 500 | 50000 | 5 | 200 | 250 | 50000 |
| 1:5 | 10 | 100 | 500 | 50000 | 2 | 500 | 100 | 50000 |
Note: In a stock split, the investment value remains the same. The face value and stock price decrease and the number of stocks held increases.
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