A split is a corporate action by the issuing company, in which the number of shares increases and the price of shares decreases proportionally to the increased number.
The total market value of the business does not change. But the price of one share may become several times lower or higher.
An investor who holds such shares does not lose or earn anything on this, the value of his investments remains the same.
However, if a company splits shares and they become several times cheaper, more people will be able to afford them.
There are two types of stock splits: Reverse and direct splits of securities.
In a direct split, the number of shares increases and the price of each share decreases. A direct split is usually done when the stock price gets too high and the company wants to make it more affordable to new investors.
Example: A company had 1,000 shares priced at $1,000 each. The company splits 10-1, so it now has 10,000 shares priced at $100 each.
In a reverse split, the number of shares decreases and the price of each share increases. Reverse splits are often used by companies whose shares are trading at low levels, because when shares are too cheap, they may not be attractive to investors who have criteria for selecting shares based on price.
Example: A company had 100,000 shares priced at $1 each. The company splits 1:10, so it now has 10,000 shares priced at $10 each.