Suppose a company’s shares are currently trading at $150 per share, and you’re an existing shareholder with 100 shares.
If we multiply the share price by the shares owned, we arrive at $15,000 as the total value of your shares.
- Total Value of Shares = $150.00 Share Price × 100 Shares Owned = $15,000
Let’s say the company’s board decides to approve a 3-for-1 split. You now hold 300 shares, each priced at $50 each post-split.
- Total Shares Owned = 100 × 3 = 300
- Share Price = $150.00 ÷ 3 = $50.00
After the split, your holdings are still worth $15,000, as shown by the calculation below.
- Total Value of Shares = $50.00 Share Price × 300 Shares Owned = $15,000
Given the reduced share price, you are more likely to sell your shares more easily because there are more potential buyers in the market.