A stock split is when a company divides its existing shares into multiple new shares, increasing the total number of shares outstanding. The company chooses a split ratio, such as 2-for-1 or 3-for-1. Each shareholder's ownership percentage stays the same, but they now own more shares at a lower price per share. Stock splits do not change the overall value of a shareholder's investment.
You own 100 shares of a company trading at $300 per share, so your investment is worth $30,000. The company announces a 3-for-1 stock split. After the split, you own 300 shares at $100 per share, still worth $30,000. Nothing has changed in terms of value, just the number of shares and their individual prices.
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