What happens during a Reverse Stock Split?
As mentioned above, the number of shares outstanding are reduced and the new value of each share increases. Example: XYZ, Inc. has 10,000,000 shares outstanding with a share value of $1.00 each. The company announces a reverse split of 1:10, or 1 new share for 10 existing shares. After the reverse stock split, there are now 1,000,000 shares outstanding with a per share value of $10.00 each. Prior to the reverse split, 10,000,000 shares outstanding times $1.00 each= $10,000,000 total value of all shares outstanding, or Market Cap. After the reverse stock split, 1,000,000 shares outstanding times $10.00 each= $10,000,000 total value of all shares outstanding, or Market Cap. You can see that the number of shares outstanding were reduced from 10,000,000 to 1,000,000 and the value per share was increased from $1.00 to $10.00. Notice though that the total value of shares outstanding has stayed the same. What happens to shares you own during a Reverse Stock Split? As in the example above, the
