Neither. A split multiplies the number of shares and divides the price by the same factor, so the total value of a holding is unchanged. Owning ten shares at $50 after a 5-for-1 split is the same as owning two at $250 before it.
In a 5-for-1 split, every share becomes five, and the price per share becomes a fifth of what it was. The company has not received any money and nothing about the business has changed.
The market capitalisation — price multiplied by share count — is identical the moment before and the moment after.
A very high share price can be awkward. It makes round lots expensive and, before fractional shares were common, it put a stock out of reach for smaller accounts.
There is a signalling element too. A company usually splits after a long rise, so a split announcement is often read as management expressing confidence — but the split itself creates nothing.
A reverse split does the opposite: shares are combined and the price rises to match. Ten shares at $0.40 become one share at $4.00.
This is usually done to satisfy an exchange's minimum price requirement. The arithmetic is neutral, but the reason for needing it is often not, so reverse splits tend to be associated with companies under pressure.
Historical charts and per-share figures are normally adjusted for splits, so past prices are restated to be comparable. If a chart shows an abrupt drop that no news explains, an unadjusted split is a common cause.
Per-share numbers such as earnings per share are restated for the same reason.
One question, no account: what did you come here for, and did you find it? A person reads these, and they shape what gets written next.
From StockMotive — the honest why behind every market move. Educational information only, not investment advice.