If a company's stock is trading at a low price, the company may decide to reduce the number of existing shares and increase their price by consolidating the shares.
For example, a 1-for-2 reverse stock split halves the number of existing shares and doubles the price. In that case, if you hold 100 shares of a stock selling at $5 a share, for a combined value of $500, in a 1-for-2 reverse stock split, you would own 50 shares valued at $10 a share, which would still give you a combined value of $500. Stocks may be reverse split 1-for-5, or 5-for-10, or in any ratio the company chooses.
Reverse splits are generally used to ensure that a stock will continue to meet listing requirements on the market where it is traded or to encourage purchases by institutional investors, who may not buy stocks priced below a specific point.
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