FINANCIAL STATEMENTS

Financial Statements

Financial Statements

Task 1

Following are the hyperlinks which contain examples of stock dividends, stock splits, and reverse splits.

http://www.finweb.com/investing/stock-dividends-and-splits.html

http://www.uslaw.com/library/article/bcostocksplits.html?area_id=745

http://www.money-zine.com/Investing/Stocks/Stock-Splits/

Tasks 2

Stock Dividend

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 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 (i.e., how fast an investor can turn his holdings into cash).

Stock Splits

A stock split or stock divide increases or decreases the number of shares in a public company. The price is adjusted such that the before and after market capitalization of the company remains the same and dilution does not occur. Options and warrants are included.

Reverse Stock Split

A reverse stock split reduces the number of shares and increases the share price proportionately. For example, if you own 10,000 shares of a company and it declares a one for ten reverse split, you will own a total of 1,000 shares after the split. A reverse stock split has no affect on the value of what shareholders own. Companies often split their stock when they believe the price of their stock is too low to attract investors to buy their stock. Some reverse stock splits cause small shareholders to be "cashed out" so that they no longer own the company's shares.

Effect on per Share Calculation

Someone who owns 100 shares before the split (with a value of $50 per share) would be, then, after the split owner of 200 shares approximately valued in $25 per share. In January 2003, Microsoft Corporation announced a two-for-one stock split that was effective on February 18, 2003. Before the split Microsoft had closed at $48.30 per share. The ...