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1:1 bonus shares, 1:10 stock split: Tata Group stock turns ₹1 lakh to ₹12.35 crore in 14 years

11 Feb 2023 Zinkpot 151

Mint - Shares of Titan Company has been in base building mode for last one year. However, the Tata group stock gave some strong upside moves during July to October 2022 period. Long term investors may not bother much by these movements as Titan share price has ascended from ₹40 to ₹2,470.50 apiece levels in last 14 years. Those, who bought Titan shares after 2011 might have got an additional benefit of dividends announced by the company over the time but for those who bought this Tata company stock before 2011, they are getting benefit of one stock split and one bonus share issue that company announced in 2011. Read more
 

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  •  What are bonus shares?  Free share that is given to a company's existing shareholders is known as bonus share. An issue of bonus shares is known as bonus issue or scrip issue or capitalization issue.
  • These are additional shares given to shareholders without any additional cost. For example, if a company declares 1:1 bonus issue, then every shareholder gets one share free for every share owned. So, a shareholder having 10 shares of a company will get 10 bonus shares, taking their total to 20 shares.
  • A bonus issue only increases the shares owned and issued; it neither increases the overall valuation of the company nor changes the ratio of shares that are owned by each existing shareholder. As it doesn't involve any cash flow bonus issue increases, only the company's share capital and not the net assets.
  • Bonus shares point towards the good health of a company. It implies that the company is strong enough to finance the additional equity. It shows the company's confidence in increasing profits and servicing dividends on every increased shares.
  •  What is the stock split?  Stock split is when a company's board of directors issues more shares of stock to its current shareholders without diluting the value of their stake.
  • Stock split increases the number of shares outstanding and lowers the individual value of each share. While the number of shares outstanding change, the overall market capitalization of the company and the value of each shareholders stake remains the same.
  • To illustrate, if someone has one share of a company's stock. If the company opts for a 2- for-1stock split, the company would grant an additional share, but each share would be valued at half the amount of the original. After the split, the two shares would be worth the same as the one share the investor started with.
  •  A reverse stock split: It reduces a company's number of shares outstanding. If one owned 10 shares of stock in a company, for example, and the board announced a 2-for-1 reverse stock split, then the person would end up with 5 shares of the stock. The total value of the shares would remain constant.
  • When a company is concerned that its share price is too high or too low, it can opt for a stock split or a reverse stock split. A stock split can help a company lower its share price to appeal to new investors, while reverse stock split can boost its share price and help preserve its listing on a major stock exchange.
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