Definition

A stock split is when a company decides to create and distribute more outstanding shares to the existing shareholders in order to make the stock price more affordable.

example: If a company decides to increase its shares outstanding from 50,000 to 100,000 would be a 2 for 1 stock split. As a result, existing share holders total shares will double. Let's say you have 10 shares prior to a 2 for 1 stock split, you would have 20 shares post stock split.

Why is it important

In order to reduce the cost of an existing share of stock and to make it more affordable for investors a business will initiate a stock split. As a shareholder the overall value your total investment will not change when a stock split occurs. Instead, the individual stock price will decrease and your total shares will increase.