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By Crystal Gooden

Axia College of University of Phoenix

Stock dividends, stock splits, and reverse stock splits are used by companies in business transactions. Dividends and splits can be found in some companies records for different accounting periods. Financial tools and strategies help companies find success by giving them a way to use business transactions to influence market prices for their shares. These financial tools include stock dividends and splits.

With stock dividends, a company issues stock to existing shareholders. Those additional shares of stock are issued in proportion to that stockholder’s current ownership. Stock dividends are not like cash dividends. When a stockholder is issued cash dividends they receive cash. Dividends of stock do not represent something of real value to the stockholder like cash dividends do. When stock dividends are issued a stockholder receives more shares but their proportion of ownership in the company stays the same.

When a company issues stock dividends the retained earnings account is decreased. The company’s net assets, which are assets minus liabilities, do not change. A company generally issues stock dividends to influence the market value of their stock. Basically, the more shares that are issued the more the market value of that stock should drop.

Stock splits are another financial tool that a company can use to influence the market. A stock split is another way to lower the market price of a company’s common stock shares, which makes the stock more affordable for the average investor. Additional shares are issued during a stock split as they are with stock dividends but it is a different method of issuance. A stock split is also done in proportion to current ownership. Stock issued during a stock split does not represent something of value to the stock holder.

A company can declare a stock split and thereby change the number of shares a stockholder owns. If a...