When the price of a company's stock rises too high, some companies may elect to split the stock. This increases the number of shares each owner has, while proportionately decreasing the value of each individual share and thus not diluting that investor's ownership stake in the company. Therefore, there is no effect on the worth of a company. The only things that change are the number of shares outstanding and the price of each share. The two main reasons a company would do a stock split is to increase liquidity by increasing the number of shares and to make the stock more affordable to smaller investors by dropping the price.
A stock split history of a company is the number of times the company split its stock, the date of those splits and the type of splits they were. When looking at the key statistics of a certain company, most financial websites that provide data on companies will include the stock spit history. There, it will say if the stock has ever split. If it has, the most common data will include the date of its last split and the type. However, you can find the entire history of company's stock by digging deeper and reviewing the stock's performance throughout its life-time.
There are differing opinions among financial professionals regarding the significance of looking at a stock's split history. Some investors argue that a stock split is a good sign for the company. They believe a split demonstrates that the company's share price is on the rise, which is a sign the company is performing well. Hence, it makes sense to look at a stock split history as an indicator of that company's performance. However, some argue that because the fundamental value does not change, there is no real value in a stock split.
There are two categories of stock splits: regular splits and reverse splits. These categories also come in different proportions. A regular stock split is when a company increases the number of shares and decreases the price of each share. A reverse split is when a company decreases the number of shares and increases the price of each share. Most splits are two for one, three for two or three for one, although reverse splits can go as high as one for 10. What a two for one split means is the investor gets two shares worth half of what the original share he owned. A one for 10 split means the investor get one share's worth what the same price of 10 original shares combined.
One of the benefits for an investor to have a company split its stock is the number of shares owned increases. This means that for every dollar the price of the shares go up, the investors sees a greater return. For example, if you own 100 shares at $5 a share, your total worth is $500. When the price of each share increase by $1, your worth increases by $100. However, after a stock split, you own 200 shares at $2.50. If the price of the shares go up to $3.50, your worth increases by $200.
As good as a stock split seems, due to the benefit of owning more shares, there is also a downside. If there is a two for one split, and you double the number of shares you own, this does not mean the price of the stock will continue to rise. Thus, if the stock falls, the money you will lose due to a drop in price will also double. Nevertheless, owning more shares is usually something to desire. That is why a reverse split is taken as bad news for both the company and the investor.