Relationships Between Stock Split and Bonus Issue of Shares & their pros and cons
Presented by Rajib Deb
Student of M.COM. 4th Sem. Tripura University, Suryamaninagar
What is stock split?
A stock split is a corporate action that increases the number of the corporation's outstanding shares by dividing each share, which in turn diminishes its price. The stock's market capitalization, however, remains the same, just like the value of the Rs. 100 does not change if it is exchanged for two 50s. For example, with a 2-for-1 stock split, each stockholder receives an additional share for each share held, but the value of each share is reduced by half: two shares now equal the original value of one share before the split.
What is bonus issue of share?
A bonus share is a free share of stock given to current shareholders in a company, based upon the number of shares that the shareholder already owns. While the issue of bonus shares increases the total number of shares issued and owned, it does not change the value of the company. Al though the total number of issued shares increases, the ratio of number of shares held by each shareholder remains constant.
Relation between stock split & bonus issue of share:
In both bonus shares and stock split the number of shares of a company increases. In case of bonus shares the earnings per share decreases proportionate to the number of bonus shares issued. for e.g.: if company issues bonus shares in ratio of 1:1 and the earnings per share is Rs.200 , then after bonus issue, the corresponding EPS will be Rs. 100. Generally company issue this in place of giving dividends. In the case of bonus issue the market capitalization doesn't get affected.
whereas in split shares the face value of share decreases, and the total number of shares increases. For example, if a company issued one lakh shares of face value of Rs 10 each, the company's share capital is Rs 10 lakhs. Now, if the company split the face value to Re 1...
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