[tanis3us]

Can someone please explain stock splits so that I might be able to better understand it and fractional shares.

[KISS]

You can have splits and reverse splits.

In order for a company to raise capital they may need more total shares, which would effectively mean there will be more outstanding.

So a 2 for 1 split, means your number od shares double, but they have the original basis.

A reverse 1 for 2 split may happen when the per share price is too low. Say tt was $2 a share. I reverse split will give you half as may shares, but the per share price will generally increase on the open market.

Fractional shares happen all the time, when, for instance when stock is re-invested. If the share price is $20 and you have 0.5 shares. It's worth 0.5*20 or $10. Or $10 of a re-investment means 0.5 shares of stock are purchased if the share price is $20.

Splits don't have to be whole numbers. It's just math.

[morgaine300]

When the stock is split, they are taking the shares that already exist and splitting them down into smaller pieces. This creates more shares. However, the total value must remain the same, so the par value on the stock has to split down also.

For instance, if you have 1000 shares of $10 par stock (total of $10,000) and you do a 2 for 1 split, you are dividing each of those shares in two. This creates 2000 shares of stock. But since you have split them in two, you also have to split the par in two. So they are now only $5 each. (And 2000 * $5 still equals $10,000 total.)

Think of it like a pie. You have a pie that has $10 on it. If you split the pie in half, right down the middle, you now have two pieces, but they are only $5 each now.

If you split the pie into 4 pieces, they would only be $2.50 for each piece. That's like a 4 to 1 split.

This does not affect the total value of all the stock put together. Nor does it affect any additional paid-in capital amount. (Excess or premium or whatever you want to call it.) Nor does it affect total stockholder's equity.