Acc-230 Week 4 Assignment

Web Search
The website I found most helpful was About.com on Investing for Beginners. The URL for this web site is http://beginnersinvest.about.com. The site had definitions and examples of stock dividends, stock splits, and reverse stock splits. Examples as follow:
??? Stock dividends – A stock dividend is a pro-rata distribution of additional shares of a company??™s stock to owners of the common stock. A company may opt for stock 2 dividends for a number of reasons including inadequate cash on hand or a desire to lower the price of the stock on a per-share basis to prompt more trading and increase liquidity
??? Stock split – Stock split is a method commonly used to lower the market price of the shares by increasing the number of shares belonging to each shareholder. With the share split, the balance of the equity accounts does not change, but the par value per share changes. The earning per share will be diluted and the market price per share will fall proportionately with a share split. But the total value of the holdings of shareholders remains unaffected with a share splits.
??? Reverse stock split – A reverse stock split is a unique stock split that reduces the number of shares outstanding. By reducing the shares outstanding the price increases per share on the stock. The reverse split is used to stop the market price per share below certain level. The reverse split is generally an indication of financial difficulty and is a big red light to change the stock in your financial portfolio.

Another website I found useful in per share calculations was Stock Market Investors at http://www.stock-market-investors.com. This site gave detail on different types of earnings per share (EPS) calculations, tailing EPS, current EPS and forward EPS. What are earnings per share calculations It is the companys profit divided by its number of shares. Earnings per share (EPS) are figured by Net earnings divided by number of outstanding shares. Companies choose may stock dividends instead of cash dividends to increase the number of shares of stock outstanding. If the market does not adjust for the increased number of shares outstanding the individual stockholders will benefit from receiving more stock instead of cash dividends. A company may choose to do a stock split because they believe by lowering the stock price makes it capable for more people to purchase the stock. By splitting the stock, it creates increased liquidity for the company. By conducting a reverse stock split, the company is more than likely in trouble. The company is trying to get a stock up above a dollar and out of the danger zone of being booted off the exchange.
An explanation of how stock dividends, stock splits, and reverse splits affect the firm and the investor. An example of a stock dividend would be if a company had 1 million shares of common stock and the company had investors that owned 200,000 shares each which traded at $100 per share; the company would have a market capitalization of $100 million. If management decided to issue a 20% stock dividend; the company would print up an additional 200,000 shares of common stock and sends them to the current shareholders based on the current ownership. Now, the company currently has 1.2 million shares outstanding.
A stock split is when you own a certain amount of shares in a company, say 25 shares at $15 per share, and if there is a 2-1 stock split in the company shares, you now own 50 shares worth $7.50 each. Investors think a split is a good thing thinking that now that the stock is split it will raise back up to where it was before the split, but the problem with that is, they will get paid less dividends per shares A reverse stock split occurs when the market or economy is facing financial turmoil and companies or sectors are suffering from a decline in a per share stock price. If the market price falls low enough, the company can become unlisted from the stock exchange and that can be a tragedy for stockholders.

Reference
About.com (2012). Investing for Beginners. Retrieved November 11, 2012, from http://beginnersinvest.about.com/od/dividendsdrips1/a/aa040904_2.htm
Stock Market Investors.com (2008-2011). Earnings per share. Retrieved November 11, 2012, from http://www.stock-market-investors.com/pick-a-stock-guides/earnings-pershare-eps-calculation.htm