CISI Professional Practice Exam 2025 – Complete Prep Guide

When a stock split occurs, a company divides its existing shares into multiple new shares to increase the number of shares outstanding without changing the total value of the company. For example, in a 2-for-1 stock split, shareholders will receive two shares for every share they own, effectively halving the price per share.

The market capitalization of the company remains the same right after the split, as the total value of all shares combined stays constant. However, the number of shares available increases, leading to a proportionate decrease in the price per share. This adjustment maintains the equity value defined by the share price times the number of shares outstanding.

Thus, the outcome of a stock split is that the share price becomes proportionately lower, reflecting the additional shares created while preserving the overall equity value held by shareholders. This dynamic allows for wider access for investors, as the lower price per share often makes it more attractive for new investors to purchase shares of the company.