Running the Numbers if Shares are Reverse Split 1:7
Same amount of pie...just bigger pieces. Reverse Splitting the stock for no reason doesn't make much sense. However, reverse splitting to make the stock NASDAQ and marginable---HUGE. For instance...if you would pare the outstanding shares sevenfold...400,000,000/7 that would reduce our oustanding shares to 57.1 million and the float to just over 10 million. The Revenue, Earnings and Asset value would all stay the same, just divided by a smaller number:
Earnings: $22,000,000/57,100,000 equals $.38 per share.
Book Value: $55,000,000/57,100,000 Equals $.96 per share
Look at the share price at the different PE ratios:
10 would mean a share price of $3.80
20 would mean a share price of $7.60
30 would mean a share price of $11.40
No matter which outcome they choose, it will be a win win. Another of the advantages of a reverse split is that it allows bigger brokerage houses to recommend the stock to their clients. Some firms won't let brokers recommend shares under $5.00.
By all this don't think I'm naive or wanting a reverse Split...I'm just pointing out that its not all that bad and can be potentially good, especially when you have a profitable growing company.
AI
