A pizza divided into more slices
Imagine a pizza worth 200 kroner. You divide it into four slices — each slice is worth 50 kroner. Now you divide it into eight slices instead — each slice is worth 25 kroner. The pizza is still worth the same — it is just divided into more slices.
That is exactly what a stock split is. The company divides existing shares into more — the price falls proportionally, but the total value remains the same.
"The value of something does not change by how you divide it. A diamond is just as valuable whether whole or divided into two equal parts."
— Florence Scovel Shinn
A concrete example
Apple is a classic example. In 2020 Apple carried out a 4-for-1 stock split:
Before split
You own 10 Apple shares · Price per share: $500 · Total value: $5,000
After split (4-for-1)
You own 40 Apple shares · Price per share: $125 · Total value: $5,000
Why do companies do stock splits?
Accessibility
When a stock costs $5,000 it is inaccessible to many small investors. After a split to $500 far more people can buy. The company gets more shareholders and better liquidity.
Positive signal
Companies often split shares after a long period of price appreciation. A split signals that management is confident about the future — it is a trust signal to the market.
Reversed stock split — the opposite
A reversed stock split is often a negative signal — the company does it because the price has fallen so low it risks being delisted from the exchange.
Warning: A reversed stock split is rarely a good sign. It signals that the company has struggled over time and the price has fallen sharply. Be cautious with companies that carry out reversed splits.
"Do not let the form confuse you about the content. Value does not lie in the packaging — it lies in what is inside."
— Florence Scovel Shinn