E-Mail 'What is a Reverse Stock Split?' To A Friend

The above explanation considers a normal stock split. The term “reverse stock split” refers to the exact opposite. If a company falls on hard times and the share price drops to very low levels the board of directors my want the stock price up. There are several reasons for this; investors perceive a very low priced stock as less desirable, exchanges may only list stocks selling over certain prices, etc. In this case the board cuts the number of shares perhaps in half which should result in a doubling of the share price. Usually investors perceive the company is having problems so the actual share price may start trading at somewhat less than double.

Hope this helps.

Steve Wasylkowski