How Investors can gain from Stock Split

What is Stock Split?

A stock split is a corporate action in which a company divides its existing shares into multiple shares to boost the liquidity of the shares.

What are objectives behind stock split?

Stock split is undertaken to infuse liquidity and to make shares affordable for small investors who could not buy the shares of that company earlier due to high prices of share.

Does it dilute Value?

No. The underlying value of each share and the total market capitalization remain the same in spite of the number of shares increases. Unlike an issuance of new shares where the total number of shares and the total market capitalization also increase, thereby reducing an existing shareholder's value, a stock split does not dilute existing shareholders value. The ownership of existing shareholder does not get affected due to stock split.

Why do Companies opt for Stock Split?

Sometimes the price of a company's shares rise so much that it may discourage investors from buying them. So, the company decides to reduce the cost per share by way of a stock split. This also helps in increasing its overall liquidity as new investors may show interest in buying shares. 

How does it benefit investors? 

A stockholder will get two or three shares for one share without any additional cost, making it easier to carry out trades. Also, stock splits can be a best way for retail investors to accumulate a higher number of shares of blue-chip companies which are more expensive. 

Waht is effect of stock split on Share price?

When a stock split takes place, the share price of the stock is adjusted by the inverse of the split ratio. If the share price was $80 before the 2 for 1 split, the stock will start trading at $40 per share after the completion of stock split. The purpose behind a stock split is to bring the share price down to a range where the board of directors believes it will be more attractive to investors.Stock splits are viewed as a positive event and an investor who buys before the split may see a stock price increase after the split due to more investors buying the stock.

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Why would company buyback its own share

Buyback of Shares happens when a company purchases and retires some of its existing shares. Buy Shares can not be reissued in the market. This can be a great thing for shareholders because after the share buyback, they will own a bigger portion of the company, and therefore a bigger portion of its cash flow and earnings.

What happens to share price after buyback?

A buyback  is mean to reduces the number of shares in a company held by the public. In the short term, the stock price may rise by reason of shareholders who know that a buyback will immediately boost earnings per share. Over the long term, a buyback may or may not be beneficial to shareholders.

How will a share repurchase affect the value of the company?

On the balance sheet, a share repurchase will reduce the company's cash holdings, and consequently its total assets base, by the amount of the cash expended in the buyback. The buyback will simultaneously also shrink shareholders' equity on the liabilities side by the same amount. Therefore underlying value of share does not get affected.

Is buyback of shares good?

The theory behind share buybacks is that they reduce the number of shares available in the market and – all things being equal – thus increase EPS on the remaining shares, benefiting shareholders. ... The shareholder believes that stock is undervalued and a good buy at the current market price.

How will shareholders benefit from buyback of shares?

Stock repurchasing can allows companies to reinvest in themselves by reducing the number of existing shares in the market. ... From a financial perspective, buybacks benefit investors by improving shareholder value, increasing share prices, and creating tax beneficial opportunities.

What is objective behind buyback of shares?

1. Through buyback, company increase promoters holdings, as a percentage of total outstanding shares, without additional investment.
2. Company wants to change the capital structure.
3. Management thinks that Company’s stock are available at bargain rate.
4. Company have huge cash reserve and wants to return the excess cash to the share holders, in the absence of appropriate investment opportunities.

What are method of buyback of shares? 

Companies generally buy back share by the tender method or open market purchase method. Under tender method, the companies offer to buy back shares at a specific price during a species period. Under the open market purchase method, a company buys shares from the secondary market over a period of one year subject to maximum price fixed by the management.

Be the early bird to embrace opportunities available in buyback offer

Conclusion

Share repurchases are a great way for a company to create value for its shareholders, especially if the company has excess cash and little growth prospects, but only if they purchase their shares at a price below intrinsic value.

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How to make money in share market

Everyone wants to have another source of income especially a salaried person because he has fixed obligation to pay like home loan etc. So it becomes important to make effort to earn extra income.

Generally most people choose stock market to earn extra income, but it is not easy to earn money out of share market. Because there are professional persons with whom you have to compete. So it requires extra quality in you. You can develop the required quality by experience of one or two year depends upon your observation power.

Minimum Requirement

1. Minimum Investment

2. Patience

3. Fundamental Analysis

4. Avoid Fake news

Very precious quotes by Warren Buffett (Greatest investing mind of our time)

“Be fearful when others are greedy and be greedy when others are fearful”

Here we will see in details

Here we will see in details

Minimum Investment

In law, there is no any minimum investment criteria, but it will be beneficial to have enough capital to earn profit otherwise you lose your money and also your precious time

Patience
The best investors has confidence in their discipline to make their strategy successful. Frequent trade by investors have high possibility of losing money and make brokerage house rich by giving away money on brokerage. The entry level and exit level should be pre-determined and implement very strictly.

Fundamental Analysis
In long term investment, Fundamental analysis of target company is very important aspect. Fundamental analysis gives you better idea of

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