 In this presentation, we will take a look at the concept of stock dividends and stock splits. First, we'll start with stock dividends. So remember what a dividend is, it's gonna be a distribution from the corporation to the owners. It's similar to a draw for a sole proprietor or a partnership, except for the fact that a sole proprietor or partnership equity section will be listed out in terms of who owns the business, who has ownership and therefore who is owed to by separate capital accounts. With a corporation, all of these stocks are uniform. The only difference between the owners are how many stocks they own. And therefore the distributions that we have for a corporation are going to have to be uniform to all the stockholders. In other words, we can't have one shareholder that owns one share to ask for a distribution as an owner, which would be given to them individually and not given to the rest of the shareholders. What they can do is the shareholders could vote and put pressure on the board to give a dividend, that dividend then being given to all shareholders in an equal amount, because that's how the uniformity of the stocks work in a corporation. So it is possible to give distributions of something other than cash, of course. So the common thing for a corporation would be to give a stock dividend. So, and it's a little bit, if we're a sole proprietor or a partnership, we could get paid indifferent. We can get paid in equipment or something like that if we wanted to. It doesn't happen all the time. The common form of payment would be cash. But it's possible for us to distribute a draw in some other format for a sole proprietor or partnership. For a corporation, it's a little bit more difficult because again, it has to be uniform. We can't give something to one shareholder for one share that we don't give in some way to the rest. It all has to be the same. What we can do is give some type of stock dividend because that's something that we can give uniformly in terms of a distribution. When a stock dividend is given to the owner, so we have a pre-existing owners and they're gonna receive something, they're gonna receive more stocks. What does that mean? They're getting more value in the company. They have more voting value in the company and they're getting more basically equity in the company. In essence, the stock dividend is gonna be transferring from the retained earnings of the company to the investment of the company. We're allocating more stock without getting some investments to owners. So the owners are getting more stock without putting cash or some other assets into the business. Why might we do that? Why might a company decide to give a stock dividend rather than just paying a cash dividend? One primary reason might be to keep the market price affordable. In other words, if we're selling stocks on exchange or something like that, stocks are selling and we start to keep doing well, the business grows and we do better and better, well then the market price is gonna go up if there's the same amount of shares out there. So if we were to give a stock dividend, then that might lower the stock and because there's be more stocks out there and make the stock more affordable. So it might be something that we can keep the stock price in a range that people can purchase by giving the stock dividends out. It can also indicate the confidence in the company. And just note what's really happening here. We'll see this as we record a transaction. We're basically taking the amount, if we think about the equity section of the company, we've got assets minus liabilities equals the equity, equity being broken out into two major components, one being the initial investment, the common stock portion and the other being the accumulation of revenue, less dividends over time. So the accumulation of revenue, the retained earnings, what we're doing here when we have a stock dividend, we're really reducing the retained earnings, the accumulation of revenue over time and kind of transferring that to the stock, the initial investment. So we're just reducing basically one side of the equity section, the retained earnings, the accumulation of the earnings over time minus the dividends. And we're increasing the other side of the same equity section, which is the portion that relates to the initial investment, the selling of stock. So it would be similar to us, the stock dividend would be similar to kind of a two-step transaction, which would be like if the company was to give a cash dividend, reducing retained earnings, giving the cash to the owners and then the owners taking that cash and purchasing stock for it and putting it back into the company, thereby increasing the equity section. There then would be no net effect on the cash. The cash would go to the stock holders and then go back to the company. And what the end result that's really happening here is just the equity section is going, the part of it's going down, the retained earnings is going down and the initial investment, the common stock side is going up. Then we have the idea of a stock split and it's similar in some ways. We're gonna have the stock split. It's gonna be additional shares of stock according to a percent ownership. So a stock split would basically be the idea that whatever we have, we're gonna basically provide more stock based on the ownership of a stock. So we might say that there's like a two-for-one stock split or a three-for-one type of stock split. We can have the same kind of reasoning for the stock split. We can say that it's gonna keep the market price in an affordable range if we have the stock split. Note that the relative ownership of the company and therefore the voting rights of the company should stay the same relative to other individuals so that the voting power should stay the same. However, the price of the stock could go down and therefore make the market price possibly more attractive to investors to sell the stock. So it could look something like this if we had a $20 par value common stock and we had 10,000 shares outstanding, then if we had a two-for-one stock split, what would in essence happen is the par value would go down to $10 and we would have 20,000 shares outstanding. So in other words, every person that has the stock then prior to this had some stock of the 10,000 shares outstanding, but it had a par value. And remember that this par value is arbitrary. This is an arbitrary par value. It had an arbitrary par value of the $20. Then we had a two-for-one stock split. So everybody that had a stock now is gonna, if they had one stock now they have two stocks. And so that means that there's 20,000 shares out there. And now the par value got split in half to $10. So we split the par value with that arbitrary number in half. So the outcome of this then is gonna say that we have the 10,000 shares times 20 par value at the beginning. We would have 200,000 common stock on the statement of stockholders equity. And the other side being that we have $10,000 par value times 20,000. We'd have, oh, something happened there. We had $10 times 20,000. So we still have the 200,000 there. The only difference is gonna be in the wording. The wording's gonna say in the prior example, we have $20 par value, 10,000 shares outstanding. Whereas once the stock split happens, the wording's gonna say there's $10 par value and 20,000 shares outstanding. So again, just note that the stock split, one doesn't change any actual numbers on the financial statements, meaning the common stock will be on the books for the 200,000. Either way, the paint and capital will be the same. It doesn't change the retained earnings as we have the stock split. The thing that will change is just the wording, which would be $20 par value, 10,000 shares, $10 par value at 20,000 shares. So why might we do that then? Note that what we're not talking about here is the market price as well. So this is the par value price. We can't really determine what the market price is but the market does that. The market determines the market price. But you would think that if we had a market price, say this is the par value price and say the market price was $100, you would think that the market would say, hmm, see, there was a stock split that we've declared the stock split and because the retained earnings has not changed, in other words, the value of the company hasn't changed, you would expect that once it has been declared announced that there's a stock split, that the market price would be divided in half. So you would think that we would have a $50 market price after that point in time. Again, we can't necessarily say that because we don't control the market price. What we control is our par value price. So once we do the stock split, there's no effect on retained earnings. We didn't do anything in essence. The company hasn't made any more money. We haven't received any more investments. We haven't even changed the dynamics of the ownership, meaning each owner still owns the same percentage of stock. That being the important thing because let's say I own 51% of the stock, after the stock split, I still want to have that controlling interest because I have complete controlling interest in that case. If I own 20% of the stock, I have a lot of an influence. That's like me having 21 or 20 votes out of the 100 votes. That's pretty good influence for a corporation. So what the stock split is not doing is diluting or strengthening the percentage ownership. So all it's basically doing is changing the dynamics of it, meaning the number of shares will double. The par value will go in half. No change other than that. The change to the market, however, the market could react however the market reacts for whatever reason the market would react. But we would predict that the outcome of this would be to lower the market price, possibly you would think to take it in half considering nothing else has happened other than just a stock split.