Written by the Fiveable Content Team • Last updated September 2025
Written by the Fiveable Content Team • Last updated September 2025
Definition
A reverse stock split reduces the number of a corporation’s outstanding shares while increasing the share price proportionally. It does not change the company's overall market capitalization or shareholder equity.
5 Must Know Facts For Your Next Test
A common reason for reverse stock splits is to increase a company's stock price to meet exchange listing requirements.
Reverse stock splits are often viewed negatively by investors as they can signal financial distress.
The process involves exchanging a set number of old shares for a smaller number of new shares, such as a 1-for-10 reverse split.
Reverse stock splits do not affect the total value of an investor's holdings; only the number of shares and their individual price changes.
Financial statements must be adjusted post-reverse split to reflect the new number of outstanding shares and per-share values.
Review Questions
Related terms
Stock Split: A corporate action that increases the number of shares by issuing more shares to current shareholders proportionately, reducing the share price accordingly.
The total market value of a company's outstanding shares, calculated by multiplying the current share price by the total number of outstanding shares.
Shareholder Equity: The residual interest in the assets of a corporation after deducting liabilities, representing ownership interest held by shareholders.