A stock split increases the number of shares outstanding while reducing the price proportionally. The holder ends with more shares worth exactly what they held before.
The arithmetic is a change of units
In a two-for-one split, every share becomes two and the price halves. A holding of a hundred shares becomes two hundred at half the price each.
The company's assets, earnings and liabilities are untouched. Nothing about the business has changed; only the denomination in which ownership is expressed.
The same applies to per-share figures. Earnings per share halve alongside the price, so valuation ratios calculated from them are unaffected.
Ownership proportions are preserved exactly
Every shareholder receives the same multiple, so relative holdings are identical afterwards. No one's stake in the company grows or shrinks.
This distinguishes a split from an issue of new shares, which raises capital and dilutes existing holders because the new shares go to someone.
A split raises nothing and dilutes no one, which is why it requires no payment from anybody and produces no cash for the company.
The stated purpose is accessibility
Companies generally justify splits by pointing to the price of a single share becoming inconveniently large for smaller investors or for options contracts written in round lots.
Fractional share trading has weakened that argument considerably, since a buyer can now acquire part of a share regardless of the quoted price.
The accessibility case retains some force for derivatives and for index rules that reference share price, where whole shares still matter.
Any price reaction is a signal, not a value change
Shares sometimes rise around a split announcement, which cannot be caused by the split itself since it creates nothing.
The usual explanation is signalling: management typically splits after a sustained rise and when it expects the price to remain elevated, so the announcement conveys confidence.
Whether that signal contains information beyond the price history it follows is contested, and the effect where measured tends to be modest.
Reverse splits carry a different message
Consolidating shares to raise the price works by the same arithmetic in the opposite direction, and it leaves value equally unchanged.
The motive is usually to satisfy an exchange listing requirement with a minimum price, or to shed the perception attached to a very low quoted price.
Because the circumstances prompting one are typically unfavourable, reverse splits are read as a negative signal even though the mechanics are entirely neutral.