I am quite interested in reverse stock split. Here is what I...

I am quite interested in reverse stock split. Here is what I learned yesterday. Hope this would also help you guys.

A reverse stock split is also called a stock merge, where a company merges the stocks to form a smaller number of proportionally more valuable shares. Company reduces the total number of outstanding shares in the open market, a signal of a company in distress. By involving such process, the share price will increase. For example, in a one-for-three reverse split, shareholders would receive one share of new stock for every 3 shares they owned. If a shareholder owned 300 shares before the split, he/she would own 100 shares after the reverse stock split. If a shareholder owned 301 shares before, the remaining one share would be bought back by the company. (I am not that sure lol.) A reverse stock split will not affect the company's value or total market capitalization.

There are several reasons for a reverse split. Firstly, it will prevent the company from being delisted from an exchange, where the stock price falls below $1, by increasing the share price. Apart from this, being listed on a major exchange is likely to attract investors. Secondly, a reverse split is able to create a positive image of a company if the stock price has dropped dramatically. To prevent the stock being a penny one, which is considered as a risky investment, reverse split is a good way to avoid this label. Lastly, it helps to attraction higher attention from analysts due to the higher stock price. This favorable view from analysts is excellent marketing for the company.

I am gonna learn more about stocks. Hope to be a good investor in the future.