Stock Split
A stock split is a corporate activity that increases the number of shares in circulation by multiplying the amount of shares each shareholder possesses. This process does not affect the value of a company, as the value of a new share amount remains the same. A stock split is usually done in 2 for 1 or 3 for one amounts. To demonstrate, if 6 shareholders each had 5 shares worth $500, every shareholder will have 10 shares worth $500 after a stock split. There is no need to change any of the financial statement calculations after this action, only to increase the stated number of shares people hold.
Stock Dividend
A stock dividend is when a company chooses to pay dividends to shareholders with more shares. This type of payout is not subject to taxation, and it does not affect the overall value of an organization (Chen, 2022). Therefore, it is a process necessary only for diluting the price of existing shares. It is also important to note that dividends can be classified as small and large. Dividends smaller than 20-25% are considered small, while those larger than this value are treated as large. A larger percentage of dividends affects a company’s financial statement more, as it reduces its retained earnings more.
Treasury Stock Transaction
Treasury stock transaction is when a company acquires shares previously held by its shareholders. The process reduces the equity held by aforementioned shareholders.
Diluted Earnings Per Share
- Outstanding stock warrants and options – calculated together with other earnings
- Outstanding convertible preferred stock – considered part of the company’s net income
- Outstanding convertible bonds – excluded from the process
Reference
Chen, J. (2022). Stock dividend definition: What it is and how it works, with example. Investopedia. Web.