What is 'Split Adjusted'

Split adjusted is a term applied to all data that undergoes modifications following a split, or division, of a stock's share price. This allows for analysis between current price and other data to price and other data from the past.

A stock undergoing a three to one split (a split ratio of 3:1) sees its share price divided by three, while the number of share outstanding triples, keeping the overall company valuation constant.

Stocks can reverse-split, creating fewer shares at a higher price, again with valuation remaining the same.

BREAKING DOWN 'Split Adjusted'

Companies split their shares for multiple reasons but the primary reason is to keep their share price affordable to most people. The thinking is that it will have higher investment interest, wider ownership and a stronger secondary market. All of these components contribute to making it easier and cheaper to raise additional capital with a primary market offering of additional shares.

Reverse stock splits, also known as a stock consolidation or share rollback, create higher priced shares. There are a number of reasons why a company may decide to reduce its number of outstanding shares in the market, which, unfortunately for the company, may be the result of poor stock performance. In the vast majority of cases, a reverse split is undertaken to fulfill exchange listing requirements.

Other Considerations for Split Adjusted Stocks

Investors owning stocks that undergo splits see little effects in terms of the value of their holdings, other than a change in the number of shares in their account. One hundred shares of a stock at $50 per share has the same value as 200 shares of the same stock trading at the split price of $25 per share.

Per share data, such as earnings, revenues, sales, etc., will indeed change. However, the math says that ratios, such as the price/earnings (p/e) ratio, will remain the same. Price per share and earnings per share both split the same way.

Investors looking at charts will also notice that historical volume will change according to the split ratio, although in reverse. In other words, a stock that traded 1000 shares on a given day in the past later undergoes a two for one split. Looking at a split-adjusted chart after the split occurs will show 2000 shares at ahlf the price for that same day. Again, the dollar value of the shares traded that day will remain the same.

While split adjust usually refers to stock prices, options on underlying split stocks are also split-adjusted by increasing the number of shares covered by the terms of the option. This conversion is done by the same split ratio as the underlying shares, and the strike price is divided by the split ratio. This is also the reason you might see fractional options stike prices following stock splits.

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