1
Financial Year  
Subject Subdivision
Type    Stock Split
Description SHARE SPLIT INVOLVING THE SUBDIVISION OF EVERY 1 ORDINARY SHARE IN PENTAMASTER CORPORATION BERHAD ("PCB") INTO 2 ORDINARY SHARES IN PCB ("SUBDIVIDED SHARES")
Amount  1 : 2

If I buy a stock price $5 with $1,000,

It means I have around 200units.

After the stock split above, I will have 400 units?

If the stock price went up to $10 after 1 year.

I sell the stock and can get $4000 (400units x $10)?

2 Answers 2

2

After the stock split above, I will have 400 units?

Yes 400 units with each unit worth $2.5 [$5/2]

I sell the stock and can get $4000 (400 units x $10)?

Yes that is right.

2

Note that increasing the amount of stock through a split does not increase the value of the company. If my company is worth $10M and I split my stock it is still worth that much. Shares in a company give you rights to a proportion of the company defined by the proportion of the shares that I own. If I own 5 stocks of a company with 200 shares then I own 2.5%. If that company is worth $10M then they are worth $250k. If the company then splits 1:2 there are 400 outstanding shares, I own 10 of these which is still 2.5% of the total. Since the $10M valuation hasn't changed these are still worth $250k. When the stock splits the price will (approximately) halve so you will go from owning 200 stocks at $5 to 400 stocks at $2.5. Going from $5 to $10 is only (!) doubling in price but going from $2.5 to $10 is quadrupling which is much less likely to happen. If the stock were to quadruple in value, meaning that the value of the company has increased by that much too, then you would indeed be able to sell your 400 stock for a $4000 total. Again I have to point out that this increase is substantially less likely than going from $5 to $10.

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