Re: Re r/s and the nas
in response to
by
posted on
Jan 27, 2022 10:47AM
Thanks for the information. Further info here:
During a reverse stock split, a company cancels its current outstanding stock and distributes new shares to its shareholders in proportion to the number of shares they owned before the reverse split.
For example, in a one-for-ten (1:10) reverse split, shareholders receive one share of the company's new stock for every 10 shares that they owned. In other words, a shareholder who held 1,000 shares would end up with 100 shares after the reverse stock split was complete.
A reverse stock split has no inherent effect on the company's value, with its total market capitalization staying the same after it’s executed. Yes, the company has fewer outstanding shares, but the share price increases in direct proportion to the reverse stock split.1
The total value of the shares an investor holds also remains unchanged. If an investor owns 1,000 shares each worth $1 before a one-for-10 reverse stock split, the investor would end up holding 100 shares worth $10 each after the split. The total value of the investor's shares, therefore, would remain at $1,000.
There are several reasons why a company may decide to execute a reverse stock split and reduce its number of outstanding shares in the market. Here are the main three motives:
Reverse stock splits aren’t without flaws. In many cases, companies keen to artificially boost their share price in this manner risk being spurned by investors.
Reverse stock splits can carry a negative connotation. As previously stated, a company is more likely to undergo a reverse stock split if its share price has fallen so low that it is in danger of being delisted. Consequently, investors might believe the company is struggling and view the reverse split as nothing more than an accounting gimmick.