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Author: Operknockity Two stars, 250 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 942  
Subject: Re: Basic Question Date: 7/9/2001 8:04 PM
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> The new share price is not determined by the date of the split but
> by the original purchase price(s) of the shares? Meaning that a $60
> share would now be $30, and $50 shares, $25?

Not quite. The date of the split is very important. On the day of the split, at the close (or upon the open the following morning), the stock price (and all other relevent info like 52 week hi/lo, P/E, dividend per share, etc.) are adjusted for the split ratio. So, if the stock closed the day at $50, on a 2-for-1 split, the next morning it would show previous close of $25.

At the same time, if you are holding shares of the stock, your account would be adjusted for the split. If you have 100 shares on a 2-for-1 split, you'd suddenly have 200 shares.

Note that the net value did not change. Pre-split it was 100 shares x $50/share ($5000). Post split it is 200 shares x $25/share (for the same $5000).

What I think you are getting confused over is that even though the stock has split, the total cost basis for your holdings have not changed. If you bought those 100 shares a year ago for $40/share, the cost basis then was $4000 (100 x $40). The cost basis for the lot is still the same but the cost basis per current share has changed because of the split. The cost basis of the lot of current shares is still $4000, but it is 200 shares x $20/share (original shares and price adjusted for the split).

If you sell the whole lot, the original cost basis still applies. If you sell part of the lot, then the cost basis is computed based on the split adjusted purchase prices and shares. Or you can compute the basis as a percentage of the original cost basis... You sell 100 shares (50% of your holdings) tomorrow with a cost basis of 50% of the original cost basis.

Hope this cleared it up.

- howard
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