What is the impact of a reverse stock split on a company's shares?

What is the impact of a reverse stock split on a company's shares?

• A. Increases the number of outstanding shares
• B. Decreases the number of outstanding shares
• C. No effect on the outstanding shares
• D. Reduces the overall market capitalization

Answer: (B)

A reverse stock split consolidates the number of a company's outstanding shares, resulting in a decrease in that number. For example, in a 1-for-10 reverse stock split, a shareholder would exchange 10 shares for 1 new share. While the total number of shares outstanding is reduced, the total value of the company remains the same, assuming no other market factors are affecting the stock price. This type of action is often taken by companies to increase the individual share price and may help them comply with stock exchange listing requirements. In a reverse stock split, while the number of outstanding shares decreases, the proportional ownership of shareholders remains the same, and the overall market capitalization of the company generally stays intact, contrary to what might be suggested in the other options.

A reverse stock split consolidates the number of a company's outstanding shares, resulting in a decrease in that number. For example, in a 1-for-10 reverse stock split, a shareholder would exchange 10 shares for 1 new share. While the total number of shares outstanding is reduced, the total value of the company remains the same, assuming no other market factors are affecting the stock price. This type of action is often taken by companies to increase the individual share price and may help them comply with stock exchange listing requirements.

In a reverse stock split, while the number of outstanding shares decreases, the proportional ownership of shareholders remains the same, and the overall market capitalization of the company generally stays intact, contrary to what might be suggested in the other options.