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Reverse/Forward Stock Split: What It Is, How It Works, and Example

By

澳洲幸运5官方开奖结果体彩网:Will Kenton

Updated August 24, 2024

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Gordon Scott

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Timothy Li

What Is a Reverse/Forward Stock Split?

A reverse/forward stock split is a stock split strategy used by companies to eliminate shareholders that hold fewer than a specified number of shares. A reverse/forward stock split uses a 澳洲幸运5官方开奖结果体彩网:reverse stock split followed by a forward stock split.

Key Takeaways

A reverse/forward stock split is a strategy used by companies to eliminate shareholders with less than a specified number of shares.
In a reverse/forward stock split, shareholders with less than the specified amount of stock are cashed out and the remaining shareholders are recapitalized.
This strategy cuts administrative costs by reducing the number of shareholders who require mailed proxies and other documents.

How a Reverse/Forward Stock Split Works

A reverse split reduces the overall number of shares a shareholder owns, causing some shareholders who hold less than thꦅe minimum required by the split to be cashed out. The forward stock split increases the overall number of shares a shareholder owns. A reverse/forward stockꦰ split is usually used by companies to cash out shareholders who hold less than a specified amount of shares.

This strategy is believed to cut administrative costs by reducing the number of shareholders who require mailed proxies and other documents.

490

There were 490 stock splits in the U.S. market in 2023.

Example of a Reverse/Forward Stock Split

For example, if a company declares a reverse/forward stock split, it may start by exchanging one share for every 100 shares that the investor holds. Investors with less than 100 shares would not b🅠e able to complete the split and would, therefore, be cashed out. Then, the company would do a forward stock split of 100 shares for one share. This would effectively bring shareholder🔥s that were not cashed out to their original number of shares.

At th🐻e end of this proc♛ess, the total number of shareholders would be reduced. All shareholders who started the process with less than 100 shares, and were cashed out, are no longer be shareholders at the end of the process.

What Is a Forward Stock Split?

A forward stock split i𝓰s when a company issues additional shares to its existing shareholders, effectively decreasing the share price by the same proportion. For example, in a two-for-one stock split, each investor would see the number of shares they hold double, bജut the price of each share would be cut by half.

What Happens to Leftover Shares in a Reverse Stock Split?

In a reverse stock split, a company replaces existing shares with a smaller value of new shares. If an investor held less than the🐈 minimum number of shares to qualify for the split, that investor effectively loses their shares and receives the cash value instead.

Is a Forward Stock Split a Good Thing?

Although stock splits do not affect the dollar value of an investor's holdings, they have a strong psychological effect because they reduce the purchase price of each share. This can make the stock more accessible to small investors, particularly if they cannot afford a full share.

The Bottom Line

A reverse/forward stock split allows a company to reduce the number of shareholders, by eliminating those who hold less than a certain threshold. This strategy is effectively a reverse split to force out smaller shareholders, followed by a forward split to restore portfolios to their previous size.

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