Intermediate3 min readDividends and Corporate Actions · 6/9
Stock Splits: What Happens to the Price and the Share Count?
A share was at EGP 50 and suddenly shows EGP 10. Without knowing about the split you would think it crashed 80%. Look at your share count and you will find it multiplied by 5.
What you will learn
Understand what a split does to the price and the share count.
Tell a split from a bonus issue.
Know why the chart is adjusted afterwards.
The lesson as a short video · 20 seconds · Watch on YouTubeIn this lesson
A split divides each share into several smaller ones. In a 1-for-5 split, every share you hold becomes 5, and the par value per share is divided by 5 too. Share capital does not change and no money enters or leaves. The company is the same; it is just divided into more shares.
Before
Shares100
Price50.00
Par value5.00
Value5,000
After (1 share becomes 5)
Shares500
Price about10.00
Par value1.00
Value5,000
The share count is multiplied by 5, the logical price and par value divided by 5, and the value is unchanged.
A worked example
ExampleYou hold 100 shares of an invented company, Pyramids Pharma, at EGP 50: EGP 5,000. After a 1-for-5 split you hold 500 shares at a logical price of 5,000 ÷ 500 = 10. If your average cost was 45, it is now 9 per new share.
Why would a company do this? One reason often given is that a high share price makes even the smallest purchase expensive, and a split makes the share easier to trade in small amounts. But it changes neither the company's profits nor its value; any price move afterwards comes from the market itself.
Splits and bonus shares
MythA split and a bonus issue are the same thing.
RealityBoth raise the share count and lower the logical price. But a split divides the par value, while a bonus issue moves retained earnings or reserves into capital and leaves the par value unchanged.
MythThe share got cheap after the split, so it is a bargain.
RealityThe new price is spread over more shares. The share is not cheaper than before, just smaller.
Watch outIf you compare today's price with one from before the split, use adjusted prices. The FoudaLens chart adjusts older prices so a split does not look like a fall.
See stock events
Open the corporate actions page, find a split or a bonus issue, and compare the share count before and after.