What is the Difference between a Bonus and stock-split

stock split

an issue of new shares in a company to existing shareholders in proportion to their current holdings.

Bonus share's

Bonus shares are additional shares given to the current shareholders without any additional cost, based upon the number of shares that a shareholder owns.



Before we understand these two concepts, let me explain you these two terms:



Face Value: It is nothing but the nominal value of the share so fixed by the company in the beginning. It is the value at which the company registers itself initially. It won’t change daily with the market forces.


Stock priceMarket Price: It is the price at which the share is trading in the stock exchange. It is always fluctuating depending on buyer(s) and seller(s).


Explanation using a small example :


Stock price / market price :     50 $ 
Face Value:      10 $
Outstanding shares:  10,000 $
Market capital:  5,00,000 $
Reserve Capital:  4,00,000 $


After Split:
Stock price:     25  $
Face Value:      5  $
Outstanding shares:    20,000  $
Market capital:   5,00,000 $
Reserve Capital:   4,00,000  $

--> Stock split results in reduction of face value of stock.

After 1:1 Bonus issue :
Stock price:  25 $
Face Value:  10 $
Outstanding shares:  20,000  $
Market capital:  5,00,000  $
Reserve Capital:  2,00,000  $

-->  bonus share results in reduction of reserve capital which is used to create new shares



BASIS FOR COMPARISONSTOCK SPLITBONUS ISSUE
MeaningStock Split is referred to as dividing company’s shares into multiple ones to increase the affordability.Bonus shares are shares issued by the company to their existing shareholders for free. It is issued in the proportion of their existing holdings.
ObjectiveDistribute profit without paying dividendsGain market position or saving the brand value
AvailabilityBoth existing shareholders and potential investors can benefit from the stock split.Bonus Shares are only available to the existing shareholders.
Cash FlowNo Additional Cash FlowNo Additional Cash Flow
Face-ValueFace value of stock changedFace value of stock remain unchanged
GoalsTo bring the market price per share, within a more popular range.To bring the market price per share, within a more popular range.

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