1. What is a Reverse Stock Split?

A reverse stock split is a corporate action where a company reduces the number of its outstanding shares by combining multiple shares into one. This increases the share price proportionally while maintaining the same market capitalization.

2. How Does the Calculator Work?

The calculator uses the reverse stock split formula:

Where:

• \( Old\ Shares \) — Number of shares before the reverse split
• \( Ratio \) — The reverse split ratio (e.g., 1:10 ratio means 10 becomes 1)

Explanation: The formula divides your current number of shares by the reverse split ratio to determine how many shares you'll have after the corporate action.

3. Importance of Reverse Stock Split Calculation

Details: Understanding how a reverse split affects your share count is crucial for portfolio management, tax planning, and evaluating the impact on your investment value.

4. Using the Calculator

Tips: Enter your current number of shares and the reverse split ratio. For example, if the company announces a 1:5 reverse split, enter 5 as the ratio.

5. Frequently Asked Questions (FAQ)

Q1: Why do companies perform reverse stock splits?
A: Companies typically perform reverse splits to increase their share price to meet exchange listing requirements, appear more valuable, or attract institutional investors.

Q2: Does a reverse split affect my investment value?
A: No, the total value of your investment remains the same immediately after the split, though the number of shares decreases and the price per share increases proportionally.

Q3: How are fractional shares handled in reverse splits?
A: Most companies will cash out fractional shares rather than issue them, paying you the cash value of any fractional share resulting from the reverse split.

Q4: Are reverse splits a good or bad sign?
A: Reverse splits are often viewed negatively as they're frequently used by struggling companies to avoid delisting, though sometimes they're used by healthy companies for strategic reasons.

Q5: How does a reverse split affect options contracts?
A: Options contracts are adjusted to reflect the reverse split. The number of contracts may decrease while the strike price increases to maintain equivalent value.