What is Foolsaurus?

It's a glossary of investing terms edited and maintained by our analysts, writers and YOU, our Foolish community. Get Started Now!

Reverse split

A reverse split is a stock split that reduces the number of outstanding shares and proportionately increases the price per share.

Expanded Definition

Say there was a "one-for-ten" reverse split. For every ten shares you owned, you would now be left with one. Meanwhile, the share price is increased tenfold. If yesterday you owned 100 shares at $5 each, today you own 10 shares at $50 each. Your investment is still worth $500, so there's no gain or loss from your viewpoint. Generally, if this results in fractional shares owned, the resulting fraction is paid off with cash by the company.

A reverse split is usually, but not always, a sign that a company is in trouble. Companies who's share price has fallen so much that they will be delisted by an exchange will often do a reverse split to make the price per share high enough to avoid delisting.

Related Fool Articles

Related Terms

Recent Mentions on Fool.com