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Thursday, December 26, 2013 10:34:31 AM
Reverse Forward Split: Many people refer to a forward stock split as simply a stock split. When they use the term "forward" it is usually due to the fact that it is following a reverse split. This maneuver is called a Reverse / Forward Split. This can seem confusing, but the board of directors may feel they have a good reason for this type of split. In a Reverse / Forward Split, a company may reverse the shares by a large factor, say 100 to one. This means that if an investor has less than 100 shares he would automatically be cashed out. The company would pay him cash for his shares. The company would then perform a forward split immediately thereafter. The ratio may be the same 100 to one or it might be less, it is up to the board of directors. The purpose of the Reverse / Forward Split is to shake out small investors. Every investor must be provided with voting materials and other correspondence which costs money. This allows the company to lessen their costs in that area. This can obviously prove frustrating to smaller investors, though if they would like, they may buy the stock back after the maneuver is finished using the money the company paid them to cash out.
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