Image by TEDizen via FlickrFinancial IQ Philippines Quick Hit(s):
Stock split does not provide additional value to the shares you hold. Instead, it only lowers the cost per share to a more reasonable amount.
For example, if a share of stock cost is P1,000 and was split 10-for-1, the only change is the number of shares you hold. From 1 share of P1,000 to 10 shares of P100 for each share.
Q: Please explain how to calculate what happens to a stock after a split by using Berkshire Hathaway Class B shares as an example (BRKB).
A: When it comes to stocks with sky-high share prices, few can stand up to Berkshire Hathaway's Class A shares (BRKA).
Trading for roughly $121,000 a share, Berkshire Hathaway's Class A shares are out of reach for many investors.
Partly because the Class A shares are so pricey, there's a Class B of Berkshire Hathaway. These shares don't have the same voting rights as the Class A shares, but they are easier to afford, since they're trading for about $81.
But even the B shares had a higher price at the start of the year. Associated with its purchase of railroad Burlington Northern, Berkshire Hathaway split its B shares. You can read about the split here.
What does this split mean for you if you owned the shares prior to the transaction? As you can read in the USA TODAY story, the split was 50-for-1. That means if you owned four shares before the transaction, as you indicated in your full question, you now own 4 times 50, or 200 shares.
But before you get too excited, remember that when a stock is split, the per-share price is reduced by the same ratio. So if the shares were trading for $3,850 apiece before the split, they're now trading at $3,850 divided by 50, or $77 each.
The result is that you own more shares of Berkshire Hathaway after the split, but they're worth the same amount of money.
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