Capital Market Chronicles – Episode 143: BONUS ISSUE AND STOCK SPLIT (Part II)

 Capital Market Chronicles – Episode 143: BONUS ISSUE AND STOCK SPLIT (Part II) ✂️📉📈

If the Bonus Issue was your company saying, “We love you so much, here’s extra cake!” 🎂…

…the Stock Split is the chef yelling, “This cake looks too pricey — let’s slice it into more pieces so everyone thinks they can afford it!” 🍰

✂️ What’s a Stock Split?

A Stock Split is basically corporate origami — your existing shares are folded into more pieces without actually making the paper (company value) any bigger.

Think of it as getting extra cinema tickets 🎬 for the same movie.
Number of tickets ↑, but the film (your company’s total value) hasn’t suddenly added a surprise ending.

🛠 How It Works – The Slice Multiplier

• Common Ratios: 2:1, 3:1, 5:1 (no, sadly, not “Infinity:1”)

• Example:
  You have 100 shares at ₹200 each.
  After a 2:1 split → 200 shares at ₹100 each.
  Same ₹20,000 value — your portfolio’s just more crowded now.

📉 Impact on Price & EPS – The Shrinking Act

• Price per Share: Drops in exact proportion to the split.

• EPS: Also shrinks, because earnings are now divided among more shares.

• P/E Ratio: Completely unmoved — like that one friend who doesn’t react to movie spoilers.

🧾 Effect on Financial Statements – Cosmetic Surgery Only

• No change in total share capital or market capitalisation.

• Just a technical reshuffle — more shares, lower price per share.

• Imagine rearranging the same pizza slices into a fancier box. 🍕📦

📈 Why Companies Do It:

• Affordability Boost: Lower prices let small investors join in without smashing their piggy banks. 🐷💥

• Increased Liquidity: More shares to trade = more market action.

• Positive Market Signal: Often done by confident, growing companies — like saying, “We’re hot property, baby!”

⚠️ Potential Downsides:

• No Real Value Change: You’re not richer — it’s like swapping a ₹500 note for five ₹100 notes.

• Short-Term Volatility: Traders may “play” the new lower price, causing brief market hiccups.

🏁 Bonus vs. Split — The Cheat Sheet:

• Bonus Issue: More shares, funded from reserves.

• Stock Split: More shares, funded from… absolutely nowhere. Just maths.
  Both are mostly cosmetic, both can excite the market unnecessarily, and both make your portfolio look fatter without adding any real calories. 🍫

💡 Investor Tip: More shares ≠ more wealth. It’s just the same chocolate, cut into smaller bars — and you still have to share with the market.

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