Management Notes

Menu
  • Home
  • About Us
  • Contact Us
  • Disclaimer
Menu




Reverse Stock Split

Reverse Stock Split – What is a reverse stock split | Financial Management

Posted on March 20, 2021March 20, 2021 by Smirti

Reverse Stock Split | Reverse split stock | What is a reverse stock split | Financial Management | Management Notes

Table of Contents

  • Reverse Stock Split | Reverse split stock | What is a reverse stock split | Financial Management | Management Notes
    • When the number of company’s outstanding shares in the market is reduced,
    • Example : ABC Company
    • [Before Reverse Stock Split]
    • [After Reverse Stock Split]

Reverse Stock Split is the action taken by the company to reduce the firm’s number of outstanding shares in the market because of the falling share price of the company in the market.

 

When the number of company’s outstanding shares in the market is reduced,

  • It increases the Par Value per share and Market Value per share.
  • It also increases the Earnings Per Share (EPS) and Dividend Per Share (DPS.

Note: There will be no effect on value of Common Stock or we can say Total Shareholders’ Equity Account remains Constant.

 

Example : ABC Company

Let’s take an example to illustrate the effect of reverse stock split and justify the above mentioned points.

ABC Company

Total Shareholder’s Equity Account  

[Before Reverse Stock Split]

Particulars

Amount in Rs

Common Stock [ 20,000 Shares @ Rs 100]

Additional Paid in Capital

Retained Earnings

2,000,000

1,000,000

4,000,000

Total Shareholder’s Equity

7,000,000

 

Let us assume that ABC Company announces 2-for-5 Reverse Stock Splits. After this announcement,

  • The outstanding shares of ABC company reduced from 20,000 Shares to 8,000 Shares [20,000 shares *2/5].
  • Par Value of Shares of ABC company increased from Rs 100 to Rs 250 [ Rs 100*5/2].

ABC Company

Total Shareholder’s Equity Account 

[After Reverse Stock Split]

ParticularsAmount in Rs
Common Stock [ 8,000 Shares @ Rs 250]

Additional Paid in Capital

Retained Earnings

2,000,000

1,000,000

4,000,000

Total Shareholder’s Equity7,000,000

 

 

Share this:

  • Twitter
  • Facebook
  • Reddit
  • Pinterest
  • WhatsApp
  • LinkedIn
  • More
  • Pocket
  • Tumblr
  • Skype
  • Telegram
  • Print

Related Posts

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Categories




Recent Posts

  • History of Accounting in Nepal – Accounting | Management Notes April 11, 2021
  • What are the solutions of the equation x4 – 5×2 – 36 = 0? use factoring to solve. April 11, 2021
  • If a polynomial has four terms, 3×3 + 5x + 6×2 + 10, which factoring method can be considered? April 11, 2021
  • What are the solutions of the equation x4 – 5×2 – 14 = 0? Use factoring to solve. April 11, 2021
  • What are the solutions of the equation x4 + 95×2 – 500 = 0? use factoring to solve. April 11, 2021

SEMrush

Subscribe on YouTube




Top Posts & Pages

  • Key elements of Organizational Behavior | Organizational Behavior
  • Levels of Organizational Behavior - OB| Management Notes
  • Importance of Microeconomics in Business Decision Making -Microeconomics | Management Notes




SEMrush

©2021 Management Notes | Design: Newspaperly WordPress Theme