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Split adjusted

A split adjusted price is the historical stock price taking into account the effects of stock splits.

Expanded Definition

When a company splits its shares, it usually increases the number of shares outstanding while reducing the individual share price. The net effect is that the market cap remains unchanged. You merely end up with more, less expensive shares. For instance, in a 2-for-1 split, you end up with twice as many shares at half the price. The new price is the inverse ratio of the increase in shares.

Historical stock prices must also be adjusted to reflect the action of the split. If the shares were trading yesterday at $22 and last Friday at $19.50, and today there is a 2-for-1 stock split, then yesterday's price would be adjusted to $11 and last Friday's adjusted price would be $9.75. This adjustment is propagated all the way back to the beginning stock price.

As companies repeatedly split their shares, the adjusted historical prices, when going far enough back, can look awfully small, even as if they were penny stocks. For instance, six 2-for-1 splits results in a 2^6-fold or a 1/64th reduction in the historical prices. If shares are shown to have been trading at $0.50 (split adjusted), the actual trading price back then was $32. In other words, the shares were not trading at that "really cheap" price. But the basis of shareholders holding on since then would indeed be $0.50 per share. After all, they have 64-times as many shares as they originally bought (assuming no further purchases), but their initial investment hasn't changed.

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