What is the accounting outcome of a stock split?

A stock split involves dividing the existing shares of a company's stock into multiple new shares, resulting in an increase in the number of outstanding shares. This process typically includes a proportional adjustment in the par value of the shares. Specifically, the par value per share decreases based on the split ratio. For example, if a company performs a 2-for-1 stock split, each share's par value is halved while the number of outstanding shares doubles.

This adjustment maintains the total equity of the company, as the overall market value remains unchanged despite the reallocation of par values. Such a modification helps make shares more accessible to investors and can enhance liquidity in the stock market. Understanding that a stock split is not an indicator of a company's financial health or a change in equity total is crucial for interpreting its effects accurately.