Shares splits can be classified into Ordinary and Reverse Splits.

Ordinary splits occur when a publicly held company distributes more stock to holders of existing stock. A split, say 2-for-1, is when a company simply issues one additional share for every one outstanding. After the split, there will be two shares for every one pre-split share. If the stock was at $5 per share, after the split, each share is worth $2.5, because the company’s net assets did not increase, only the number of outstanding shares.

Sometimes an ordinary split is referred to as a percent. A 2-for-1 split is a 100% stock split (or 100% stock dividend). A 50% split would be a 3-for-2 split (or 50% stock dividend).

Reverse splits occur when a company wants to raise the price of their stock, so it no longer looks like a “penny stock” but looks more like a self-respecting stock. Or they might want to conduct a massive reverse split to eliminate small holders. If a $1 stock is split 1:10, the new shares will be worth $10. Holders will have to trade in their 10 old shares to receive 1 new share. Reverse splits rarely happened in local market.

Theoretically, a stock split is a non-event because as the fraction of the company that each share represents is reduced, each stockholder is given enough shares so that his or her total fraction of the company owned remains the same. On the day of the split, the value of the stock is also adjusted so that the total capitalization of the company remains the same.

In practice, an ordinary split often drives the new price per share up, as more of the public is attracted by the lower price. A company might split when it feels its per-share price has risen beyond what an individual investor is willing to pay.

After a split, the shareholder’s cost has not changed at all; it is the same amount of money paid for the original block of shares, including commissions. The new cost per share is simply the total cost divided by the new share count.