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Splits and consolidations

A share split (stock split) means that the nominal value of each share is reduced in proportion to the increase in the number of shares, so the total book value of shares remains the same. For example, a company may have one million shares in issue with a nominal value of 50p each. It issues a further one million shares to existing shareholders with the nominal value of each share reducing to 25p, but total nominal value remains at £500,000. Of course, the share price will halve – assuming all else is constant. However, not all else is always constant because, as with a scrip issue, a share split often has a psychological effect on shareholders: it is taken as sign of confidence that the company is going to perform well ...