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✂️ Split

A stock split (or reverse split) is a corporate action that changes the number of outstanding shares while keeping the total market capitalization constant.

📖 Definition

In a stock split, a company divides its existing shares into multiple new shares. The total value of an investor's position remains the same — only the number of shares and the price per share change.

Forward Split

The company increases the number of shares. Each existing share becomes multiple shares at a proportionally lower price.

Ratio Meaning
2:1 Each share becomes 2 shares at half the price
3:1 Each share becomes 3 shares at one-third the price
4:1 Each share becomes 4 shares at one-quarter the price
10:1 Each share becomes 10 shares at one-tenth the price

Reverse Split

The company reduces the number of shares. Multiple existing shares merge into fewer shares at a proportionally higher price.

Ratio Meaning
1:2 Every 2 shares become 1 share at double the price
1:10 Every 10 shares become 1 share at 10× the price
1:20 Every 20 shares become 1 share at 20× the price

📉 Impact on Market Price

A split causes an immediate, proportional price change that is mathematically neutral:

\[ P_{\text{after}} = \frac{P_{\text{before}}}{\text{split ratio}} \]
\[ Q_{\text{after}} = Q_{\text{before}} \times \text{split ratio} \]

Where \(P\) is price per share and \(Q\) is quantity of shares.

Example: Apple 4:1 Split (August 2020)

  • Before split: 100 shares × $500 = $50,000 total value
  • After split: 400 shares × $125 = $50,000 total value
  • Price change: −75% (but position value unchanged)

Example: Reverse Split 1:10

  • Before: 1,000 shares × $0.50 = $500 total value
  • After: 100 shares × $5.00 = $500 total value
  • Reason: Company wants to raise share price above exchange minimum listing requirements

📊 Why Companies Split

Forward splits

  • Accessibility: Lower share price makes the stock more accessible to retail investors
  • Liquidity: More shares outstanding can increase trading volume
  • Psychology: A lower nominal price can attract more buyers
  • Options: Lower share price reduces the capital needed for options contracts (100 shares per contract)

Reverse splits

  • Listing compliance: Exchanges require minimum share prices (e.g., $1.00 on NASDAQ)
  • Institutional perception: Some funds have minimum price requirements
  • Often a warning sign: Reverse splits are frequently associated with struggling companies

📈 Historical Price Adjustment

When analyzing historical prices across splits, data providers typically provide adjusted prices — all historical prices are divided by the cumulative split ratio so the chart shows a smooth line.

For example, if Apple was $100 before a 4:1 split, the adjusted historical price becomes $25 to match the post-split scale.

🧮 How LibreFolio Handles Splits

In LibreFolio, a SPLIT event is recorded with:

  • Date: The effective date of the split
  • Amount: The split ratio (e.g., 2 for a 2:1 split, 0.1 for a 1:10 reverse split)
  • Notes: Optional description (e.g., "4:1 forward split")

Split events appear as markers on the chart and help explain sudden price discontinuities. When using adjusted prices from providers like Yahoo Finance, the split is already factored into the price data.