Reverse Stock Split

A reverse stock split happens when a company takes a corporate action to consolidate the number of existing shares. This reduces the number of shares, thereby making them more valuable.

While there are various reasons leading to the decision of reducing existing number of shares, it is often indicative of distress in the business.

  • In a reverse stock split, the number of existing shares is consolidated by dividing them by a specific ratio like 4 or 6.
  • It is referred to as a reverse split when the shares are consolidated, for example, one for four or two for six.

When a stock is consolidated into a smaller number, it is also known as:

  • Stock merge
  • Stock consolidation
  • Share rollback

A reverse stock split is essentially the opposite of another common practice known as a stock split.