In his decades of financial services experience, Darin Pastor has held executive positions in large corporations such as Chase Investment Services and Prudential Financial. Now the CEO of Capstone Affluent Strategies, Darin Pastor oversaw the company’s share split.
Companies announce stock splits and reverse splits to achieve certain goals. In a stock split, a company’s board decides to issue more shares to the public by increasing the number of outstanding shares. For example, a company that has one million outstanding shares trading at $500 each can split its shares by a ratio of 5-for-1. In the end, outstanding shares will rise to five million, stock price drops to $100, and market capitalization (the number of shares multiplied by the price) remains unchanged. Stock splits are usually performed to make a company’s shares more affordable to small investors.
In reverse splits, companies reduce their outstanding shares to improve respectability in the open market or prevent delisting once shares fall below a certain price. For example, a company with one million shares worth $2 each can reverse split in a ratio of 1-for-5 so that outstanding shares are reduced to 200,000, stock price increases to $10, and market capitalization remains unchanged.