A forward stock split is a division of available shares of stock that creates more shares for the same value. This is commonly done when share prices get too high in order to increase visibility and market sales.
A forward stock split is designed to increase the number of shares a company issued without changing company value. For example, a company issues 100 shares of common stock for $10 a share for a total available investment of $1,000. If the company then issues a two-for-one stock split, the 100 shares available would become 200 shares, but the price per share would drop to $5 in order to ensure the total value remains the same. When a stock split occurs, the value of each individual share of stock is reduced in proportion to the addition of new shares.
A reverse stock split is the opposite of a forward stock split. In a reverse stock split, a company merges shares together to reduce the number of available shares without changing the total value. If a company issued 100 shares for $10 a share and then announced a one-for-four stock split, the number of available shares would drop to 25, and the value of each individual share would increase to $40. As in a forward stock split, the total value of the available shares does not change.