Effect Reverse Stock Split

Current shareholders will hold twice the shares at half the value for each, but the total value doesn't change.Investors who own a stock that splits may not make a lot of money immediately, but they shouldn't sell the stock since the split is likely a positive sign.

A Shareholder will not lose money on the reverse split in and of the split itself.The reverse split increases the price to a level that increases pro trading activity, often boosting the stock price higher. The stock price is below the exchange price requirement to remain listed on the exchange.

1Take the original investment amount ($10,000) and divide it by the new number of shares you hold (2,000 shares) to arrive at the new per-share cost basis ($10,000/2,000 = $5).2Take your previous cost basis per share ($10) and divide it by the split factor of 2:1 ($10.00/2 = $5).

To calculate the new cost basis for the 3-for-4 reverse stock split, again divide the cost basis per share by the number of new shares you receive per each original share. In this case, divide $9.00 by 0.75 to get the new cost basis per share of $12.00 ($9.00 / 0.75 = $12.00).

A company performs a reverse stock split to boost its stock price by decreasing the number of shares outstanding. A reverse stock split has no inherent effect on the company's value, with market capitalization remaining the same after it's executed.

When a company's stock splits, the change in the par value is offset by a corresponding change in the number of shares so the total par value remains the same. The total stockholders' equity is unaffected by the stock split and no entries are recorded.

Reverse stock splits work the same way as regular stock splits but in reverse. A reverse split takes multiple shares from investors and replaces them with a smaller number. The new share price is proportionally higher, leaving the total market value of the company unchanged.

Will the reverse stock split change the par value of the share? Yes, the par value of each share will be increased proportionally to the exchange ratio, i.e. it will be multiplied by 20.

Reasons for a reverse stock split That's because reverse splits usually follow some kind of negative event in the company's life that has seen the stock decline for months or years. The reverse split is often associated with bad news, although it's not necessarily bad in and of itself.