stock split questions

Clark Jones jones@inficad.com
Tue, 30 Jan 2001 08:30:15 -0700


Bill Carlson wrote:
> 
> On Tue, Jan 30, 2001 at 02:44:01AM -0800, Dave Peticolas wrote:
> >
> > 1.  Are stock splits always reported as the ratio of two integers?
> 
> I have never seen anything but this.

It's not all that unusual for certain types of "companies" to have a
"fractional split", e.g., 1.003/1, often called a "stock dividend".

> >
> > 2.  If your stock splits in a ratio that doesn't multiply to give
> >     you an integral number of shares (say 3 for 2 and you have 3 shares),
> >     then you get some cash for the extra share right? Is there a
> >     name for that cash disbursement?
> 
> I have all seen this called "cash in leiu".  What it really is
> (transactionally) is the sale of a small number of shares prior
> to the split so that the split itself works correctly.  Sometimes
> it is the sale of a fractional share after the split transaction
> itself, but I think the prior makes more sense.
> 
> Another way to think of splits is as a form of "stock dividend".
> What happens is the company gives you more shares (i.e., 1 share
> for every two you hold in a "3 for 2 split").  Obviously in the
> market place this results in the revaluation of the shares to
> about 2/3 of their previous value.  The reason I put it this way
> is that I have long seen a split as simply a transaction in which
> you purchase the new shares for zero dollars and then immediately
> set the price of all the shares to the approprate (predicted) market
> value.  In gnucash to date, I have always done this as two transactions,
> but that is not perfect because there is an instantaneous balance of
> zero because of the zero cost of the shares.
> 
> (There are actually two forms of stock dividend, one is a taxable
> event and really like a dividend (as it is a transfer of company assets
> to the shareholder), the other is not a taxable event and is
> used for splits.  The former is almost never used.)

Actually, it depends more on the type of "company".  Certain types of "funds"
have a strong penchant for doing this -- and they also tend to keep "fractional
shares" on the books.  So you might, for instance, get a statement that says
you currently own 314.1596 shares.

>                 Cheers,
> 
>                 Bill
> 
> >
> > thanks,
> > dave

Special disclaimers:  I'm not a stock broker, nor an accountant, nor
a lawyer, nor do I play one on TV.  I'm just reporting what I've seen on
statements from stock brokers.

						Clark

-- 
Disclaimer:  The opinions expressed herein are mine and not necessarily
those of anyone else.  (As if anyone else would want them!)

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