What are stock splits and joint ventures?

Stock Split and Reverse Stock Split are two ways a company adjusts the number and face value of its shares.

Stock Split

Stock splitting refers to the company splitting existing stocks into more stocks in a certain proportion. After splitting, the total number of stocks increases, but the face value and stock price per share decrease, while the total market value remains unchanged. Stock splitting is usually carried out when the stock price is high to lower the stock price and make it more attractive, especially to retail investors.

Example:

• If a company conducts a 2:1 stock split, it means that each share will be divided into two. If the original stock price was $100, the stock price per share will drop to $50 after the split, but the number of shares held will double.

Reverse Stock Split

Joint stock is the opposite of stock splitting, which means the company merges existing stocks into fewer stocks in a certain proportion. After the joint stock, the total number of stocks decreases, but the face value and stock price of each share increase, and the total market value remains unchanged. Joint stock is usually carried out when the stock price is too low to increase the stock price, avoid being delisted by the exchange or attract larger investors.

Example:

• If a company enters into a 1:2 partnership, it means that every two shares will be merged into one. If the original stock price was $50, the stock price per share will rise to $100 after the partnership, and the number of shares held will be reduced by half.

Stock splits and joint ventures are both ways for companies to change the price of each share by adjusting the number of shares, but not the total market value of the company. These operations are usually for strategic purposes, such as enhancing stock liquidity or raising stock prices to meet market or regulatory requirements.