What is a Forward Stock Split?
A Forward Stock Split is when a company attempts to decrease the dollar price per share of its stock by increasing the amount of shares out in the market. Companies often conduct a forward stock split in order to make the stock more affordable for investors to purchase. Apple’s stock AAPL, for example, has split four times since the company went public, most recently with a 7-for-1 split on June 9, 2014.
Forward stock splits always have an associated split factor, which is represented as X:1 or X for 1. Let’s take a look at the Apple example*:
For Apple’s 7 for 1 or 7:1 split, this meant investors with 1 share of AAPL worth $655.90 now owned 7 shares of AAPL worth $93.70 each. Note: The total value of the 7 shares is still $655.90.
*Example is a hypothetical illustration of mathematical principles, and is not a prediction or projection of performance of an investment or investment strategy
The most important thing to remember is that while the share price will change, there is no impact on the market value of the company (or your holdings) as a result of a forward stock split. The market value of a company is determined by multiplying the price per share by the number of shares outstanding. When a company goes through a forward stock split, the number of shares increases and the price per share decreases in the same proportional amount.
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