| When a company increases the number of shares outstanding by splitting existing shares. A 2-for-1 split means every stockholder gets two new shares for each one they own, and a 3-for-2 split means they get three shares for every two they own. The price of an individual share falls, but stockholders do not lose money because they are being given the equivalent number of new shares.
In a reverse stock split, a company reduces the number of the shares outstanding by consolidating existing shares. A 1-for-5 reverse split for example, means that for each five shares owned one receives a single new share instead. The price of the new shares is five times higher, but only to reflect the shortened supply. If a company's stock is trading at a very low price, this process makes the company look more attractive to investors.
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