Reverse Stock Split

In a reverse split, each shareholder's holding is consolidated in a fixed ratio. For example, in a 1-for-10 reverse split, every 10 shares become 1. A company with 10,000,000 shares trading at 0.50 would end up with 1,000,000 shares trading at about 5.00. Each shareholder's percentage ownership and total value stay the same.

Companies usually carry out reverse splits to raise their share price. Stock exchanges often have minimum price requirements, and a share that trades below the minimum for too long may be delisted. A higher price can also attract institutional investors who avoid very low-priced shares.

Reverse splits are often viewed negatively, because they are commonly used by companies whose share price has fallen sharply. The share price sometimes continues to decline after the split.

A reverse split is the opposite of a stock split. It does not, by itself, change the company's fundamentals. Shareholders with too few shares to form a whole new share usually receive cash for the fraction.