Posted in Finance, Accounting and Economics Terms, Total Reads: 66
Definition: Value Change
Value change is the change made in the value of the stocks when any change has been made in the face value of the stocks or shares have been split by the company. So when such things are undertaken, the company needs to change the value of the stock as per the split or adjustment made in the number of outstanding shares.
By this way the market capitalization of the company remains the same when such split or change in face value has been made but later depending on the market conditions and investors sentiments the value of the stock may increase or decrease in the stock market leading to change in the market capitalization of the company.
For example: if a stock of value 100 INR is split in the ratio 1:2, it means one stock is split into two so its value has to be changed by the company to 50 INR for each stock as the amount of stocks in the market has doubled but then the price changes again with the movement of the market and trading pattern of the investors. The ratio for split may totally depend on the amount of bonus the company wants to float in the market and the number of stocks in the market after that the company has to make change in the value as per the split ratio.
This will cause change in the weightage of stocks held by the investors in their portfolio as the number of shares increased. Even in the register of the company the number of shares outstanding in public has also to be changed. This method is undertaken by the company when it earns profit and wants to distribute it to the shareholders in terms of bonus shares. It shows the strong position of the company in the market and towards its shareholders.