Stocks play an important role in our economy. For many investors, stock splits seem like too big a deal. Everyone likes it very much. This is a free Buy One Get One or more stock for investors. Stocks can be split in any ratio, but the most common ratio is 2 for 1, 3 for 1 and 3 for 2. Splits of 4 for 3, 5 for 2 and 5 for 4 have been offered to investors in the past. Recently, Apple (AAPL) surprised investors by declaring a massive 1-for-7 stock split and announcing strong second-quarter earnings. Apple has split its shares four times since its IPO. Apple's common stock was split 2-for-1 on May 15, 1987, June 21, 2000, and again on February 18, 2005 (Apple, 2014). Splitting shares is simple. You have a $100 bill in your wallet, but you decide to carry five $20 bills instead because of the popularity of small $20 bills instead of one large $100 bill. For the transaction below, if you owned 10 million shares of XYZ Corporation at $10 per share. initially, and the company offers a 2-1 stock split, upon split you would own 20 shares worth $5 each. For the same concept, you would owe $30 million at $3.33 per share for a 3-to-1 split, and for a 3-to-2 split you would owe $15 million at $6.66 per share. for 1 number of shares 10 M 20 M Share price $10 $5 Cap. stock market $100M $100M 3 for 1 No. of shares 10M 30M Stock price $10 $3.33 Cap. MWhy do companies do stock splits if there is no increase or decrease in capitalization? What kind of financial impacts do stock splits cause on companies and investors? First, stock splits have a greater psychological impact...... middle of paper ...... from http://www.apple.com/ pr/library/2014/04/23Apple-Expands -Capital-Return-Program-to-Over-130-Billion.htmlBRK/B:New York stock market listing. (nd). Bloomberg.com. Retrieved April 28, 2014 from http://www.bloomberg.com/quote/BRK/B:US Hamburg, M. (January 10, 2010). Berkshire Hathaway Inc. shareholders approve 50-for-1 stock split of its Class B common stock. Retrieved April 26, 2014 from http://www.berkshirehathaway.com/news/JAN2010.pdfSpiceland, JD and Sepe, JF (2013). Intermediate Accounting (7th ed.). New York: McGraw-Hill/Irwin, 1106-1108. Smart, SB and Megginson, WL (2009). Introduction to Financial Management (2nd ed.). Australia: South-Western Cengage Learning, 573-574. Understanding stock splits. (November 19, 2013). Investopedia. Accessed April 28, 2014 from http://www.investopedia.com/articles/01/072501.asp