The Basics of Stock Splits and Treasury Stock

💵Stock splits reduce the market price of each share, making it more affordable for investors.

💰Stock splits increase the number of shares outstanding, making the stock more liquid and potentially attracting more investors.

💸Stock splits do not change the proportional ownership of shareholders, only the number and denomination of shares.

📈Treasury stock is stock reacquired by a corporation and is often held for later reissue or to support the stock's market price.

📁Treasury stock can be accounted for using the cost method or the par value method.

What is the purpose of a stock split?

—A stock split is useful for reducing the market price of each share, attracting more investors.

Do stock splits change the proportional ownership of shareholders?

—No, stock splits only affect the number and denomination of shares, not the proportional ownership.

Why do corporations hold treasury stock?

—Corporations may hold treasury stock for various reasons, such as reissuing them as compensation or to support the stock's market price.

How is treasury stock accounted for?

—Treasury stock can be accounted for using the cost method or the par value method.

How does a stock split make the stock more accessible?

—Stock splits reduce the market price of each share, making ownership in the company more affordable for investors.

00:00A stock split is the issuance of additional shares for each existing share, reducing the market price of each share.

00:23Stock splits can help attract more investors by making the stock more affordable.

01:04The number of shares increases, but the proportional ownership remains the same after a stock split.

02:17Treasury stock is stock reacquired by a corporation and is often held for various reasons.

02:41Treasury stock can be accounted for using the cost method or the par value method.

03:32The sale of treasury stock can result in a gain or loss, depending on the sale price.