What is a 'Reverse/Forward Stock Split'

A reverse/forward stock split is a stock split strategy used by companies to eliminate shareholders that hold fewer than a certain number of shares of that company's stock. A reverse/forward stock split uses a reverse stock split followed by a forward stock split. The reverse split reduces the overall number of shares a shareholder owns, causing some shareholders who hold less than the minimum required by the split to be cashed out. The forward stock split increases the overall number of shares a shareholder owns. A reverse/forward stock split is usually used by companies to cash out shareholders with a less-than-certain amount of shares. This is believed to cut administrative costs by reducing the number of shareholders who require mailed proxies and other documents.

BREAKING DOWN 'Reverse/Forward Stock Split'

For example, if a company declares a reverse/forward stock split, it could start by exchanging one share for 100 shares that the investor holds. Investors with fewer than 100 shares would not be able to do the split and would, therefore, be cashed out. The company would then do a forward stock split for 100 for 1, which will bring shareholders that were not cashed out to their original number of shares. This would reduce the overall number of shareholders, as shareholders who started the process with less than 100 shares and were cashed out would no longer be shareholders at the end of the process. They do not get shares back during the forward split since they have already been cashed out.

RELATED TERMS
  1. Stock Split

    A stock split is a corporate action in which a company divides ...
  2. Reverse Stock Split

    A reverse stock split is a corporate action in which a company ...
  3. Adjusted Closing Price

    An adjusted closing price is a stock's closing price amended ...
  4. Split Payroll

    Split payroll is method of paying employees who are on international ...
  5. Corporate Action

    A corporate action is any event, usually approved by the firm's ...
  6. Gift Splitting

    A taxation rule that allows a married couple to split a gift's ...
Related Articles
  1. Investing

    Berkshire's Stock Splits: Good Buy Or Goodbye?

    Warren Buffett's Berkshire Hathaway recently split its stock. Is this a sign to buy?
  2. Investing

    Understanding Stock Splits

    Find out how stock splits work and how they affect investors.
  3. Investing

    How To Profit From Stock Splits And Buybacks

    If stock splits and buybacks have been a bit of a mystery to you, you're not alone. Learn some great tips.
  4. Investing

    Do Stock Splits Cause Volatility?

    Since stock splits decrease the stock price, do they also increase volatility because shares are traded in smaller increments? Investopedia examines assumptions about this increasingly common ...
  5. Investing

    If You Had Invested In NVIDIA Right After Its IPO

    A $2,000 investment would have grown to nearly $275,000 since Nvidia's IPO in 1999
  6. Investing

    Galena Declares 1-for-20 Reverse Split (GALE)

    Galena’s 1-for-20 reverse stock split goes ex-today, which will bump the share price by a factor of 20.
  7. Investing

    If You Had Invested Right After JPMorgan's IPO (JPM)

    Find out how much your investment would be worth in 2016 if you had purchased 100 shares during JPMorgan's IPO, including the impact of dividends and splits.
  8. Investing

    If You Had Invested in Qualcomm Right After Its IPO (QCOM)

    Find out about how much you would have if you had bought 100 shares of Qualcomm during its initial public offering and the amount you would receive in dividends.
  9. Investing

    What to Expect from Skechers' 3-to-1 Stock Split (NKE, SKX)

    Footwear maker Skechers (NYSE: SKX) has ridden the trend away from overpriced sneakers, watching its stock soar to record highs as sales and profits surged. And with the stock trading in the ...
  10. Investing

    Alcoa Closes Higher After Reverse Stock Split (AA)

    The reverse stock split was approved by Alcoa shareholders and the amended share count was filed in the Pennsylvania Department of State on Oct. 5.
RELATED FAQS
  1. Does a stock split lead to the gapping up/down of the stock?

    If a company splits its stock, there will be no gapping of the stock due to the split itself. A stock split does not materially ... Read Answer >>
  2. How do mutual funds split?

    Learn when mutual funds split their shares and why this practice is primarily a marketing tactic aimed at encouraging investors ... Read Answer >>
  3. What are reverse stock splits?

    A reverse stock split is a corporate action in which a company reduces the number of shares it has outstanding by a set multiple. ... Read Answer >>
  4. Why would a company perform a reverse stock split?

    Understand what a reverse stock split entails, and learn what the common motivations are for a company to perform a reverse ... Read Answer >>
  5. Does a stock split make a better investment?

    Learn why a stock split doesn't make a difference to an investor's equity and the main reason why companies choose to split ... Read Answer >>
Hot Definitions
  1. Working Capital

    Working capital, also known as net working capital is a measure of a company's liquidity and operational efficiency.
  2. Bond

    A bond is a fixed income investment in which an investor loans money to an entity (corporate or governmental) that borrows ...
  3. Compound Annual Growth Rate - CAGR

    The Compound Annual Growth Rate (CAGR) is the mean annual growth rate of an investment over a specified period of time longer ...
  4. Net Present Value - NPV

    Net Present Value (NPV) is the difference between the present value of cash inflows and the present value of cash outflows ...
  5. Price-Earnings Ratio - P/E Ratio

    The Price-to-Earnings Ratio or P/E ratio is a ratio for valuing a company that measures its current share price relative ...
  6. Internal Rate of Return - IRR

    Internal Rate of Return (IRR) is a metric used in capital budgeting to estimate the profitability of potential investments.
Trading Center