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Forward Split

A forward split, also known as a stock split, occurs when a company increases the number of its outstanding shares by issuing more shares to existing shareholders. Each shareholder receives additional shares proportional to their current holdings, while the overall market value of the company remains unchanged. The split reduces the stock price, making it more affordable and accessible to a broader range of investors. Common types of forward splits include 2-for-1, 3-for-1, and so on.

Example

A company announces a 2-for-1 forward split. If an investor owns 100 shares priced at $50 each, after the split, they will own 200 shares priced at $25 each, maintaining the same total value.

Key points

• Increases the number of shares outstanding while reducing the share price.

• Makes shares more accessible to investors without changing the company’s market value.

• Commonly used to enhance liquidity and attract more investors.

Quick Answers to Curious Questions

Companies use forward splits to make their shares more affordable, attract new investors, and increase market liquidity, potentially boosting demand and trading activity.

Shareholders receive additional shares, but their overall investment value remains the same. The split does not dilute ownership but lowers the per-share price.

Forward splits can create positive market sentiment, often leading to increased demand and a potential rise in share prices due to perceived affordability.