Stock Split and Share Buyback

## Stock Split

### Meaning

• Dividing one high-value share into multiple smaller-denomination shares.
• Example: 1 share of ₹500 → 5 shares of ₹100 each.
• Total equity value and proportionate ownership remain unchanged; only the number of shares and face value change.

### Why Companies Do It

• Share price becomes too high (e.g., ₹1,000), reducing tradability especially for retail/small investors.
• Makes shares more affordable and liquid.

### Advantages

1. Affordable for small investors — lower price per share widens investor base.

2. Increased number of shareholders may improve liquidity and capital access.

### Limitations

1. Additional expenditure — administrative and processing costs.

2. May attract speculators — lower prices invite short-term traders, which most companies prefer to avoid.

---

## Share Buyback (Repurchase)

### Meaning

• Company repurchases its own shares from existing shareholders.
• Reduces share capital and number of outstanding shares in the market.
• Treated as a form of dividend — it returns value to shareholders.

### Methods of Buyback

### Effects

• Fewer shares outstanding → EPS increases (same earnings ÷ fewer shares).
• Dividend per share rises for remaining shareholders.
• Can signal management's confidence that shares are undervalued.
• May increase or stabilise market price.