What does a reverse stock split do to a company’s existing shares?

A reverse stock split combines existing shares into fewer shares without changing the company’s total market value immediately.

For example, in a 1-for-10 reverse split, an investor with 100 shares would normally receive 10 shares. The share price would theoretically rise by a factor of 10, while the investor’s total position would initially remain approximately the same, before market movements and transaction effects.

Companies may use a reverse split to raise a very low share price or to meet an exchange’s minimum-price listing requirement. It does not by itself improve profitability, reduce debt, or increase the underlying value of the business. Investor sentiment can still cause the price to move after the split.

Reverse splits can create fractional shares. A company may pay cash instead of issuing a fraction, depending on its rules and applicable regulations. The process is the opposite of a conventional stock split, which increases the number of shares and lowers the price per share proportionally while leaving the total value theoretically unchanged.