Reverse/Forward Splits: Splits can be used by com

Reverse/Forward Splits:
Splits can be used by companies as a type of strategy to cash out shareholders with less then a certain amount of shares in order to cut administrative costs.

Reverse splits(or Stock Consolidation/Share Rollback) would involve the company dividing current shares by a given number (i.e: 10) that would be 1:10 split. Reverse split is just the opposite of a forward split, which increases outstanding shares. Reverse splits don't add any value to the company

I.e: Reverse/Forward split: 1:100 would mean investors with fewer than 100 shares could not do the split and be cashed out. Then, a forward split would happen 100:1 meaning shareholders that weren't cashed out would be brought back to their original number of shares.

A copany with 100 million outstanding shares and a pps of 20 cents, a 1:10 reverse split would reduce outstanding shares to 10 million but the pps would be at $1.00. Market cap should be unchanged pre/post split.

However, if the pps drops below $1 then increase selling pressure could form and then the market cap would fall. On a forward split, increase buying pressure can happen because of the faux success and its new lower pps may attract new investors.

Reverse splits are good also because reducing the number of outstanding shares and floated shares the stock becomes harder to borrow, making it harder for short sellers to short the stock. The lower liquidity should increase the bid-asking price that will discourage traders and short sellers.