Stock Splits

Put simply, there is absolutely no financial affect (gain/loss) on a company's EPS or P/E (or other ratios) as a result of having it's stock split.

The reason for this is that once a stock is split it's price is cut by the split factor and the number of shares outstanding increases by the same factor as well.

Therefore, the company's EPS are divided amongst the newly split shares, which means that both the EPS figure and BV (per share) will chproportionatelynatly. However, the net income and the business equity figures will remain unchanged.

This is one reason Buffett suggests looking for the owner earnings instead of focusing on EPS (and other per share figures) when analyzing a business.

• Stock Split of 2-to-1 = Outstanding after split are now twice in number and half in price.
• eg. Pixar (NASD: PIXR) annouced a 2-for-1 stock split on April 19, 2005. PIXR finished the previous trading day at a price of $92.93 with approximately 59,060,000 share outstanding. After the split PIXR's price was cut in half to $46.47, and the outstanding stock doubled to 118,120,000.