|
Stock splits and issues change the number of shares outstanding
and, thus, make it unsuitable to compare company valuation
items (e.g. EPS) before and after the stock split or issue.
Hence, in order to make comparisons meaningful, the number
of shares before the split or issue has to be adjusted
to take into account the changed number of shares in the
future year.
Reason for these steps and the order they should be done
is that the share price is updated by the system every
night. If you adjust the number of shares and leave the
share price to be updated by the system, the Market Cap
increases drastically at first (because of the old share
price and increased number of shares) just to fall at
the time the system updates the share price to be split-adjusted.
There are two steps you need to take to make required
adjustments:
First, go to the Admin-page, enter a Tickers & Share
Price and choose the ticker and click Modify. Change the
new share price and click Update.
After updating the split-adjusted share price, you can
go to make the following adjustments into your excel-model.
The adjustment is conducted with an item called Stock
issue multiple as follows:
 |
Enter a multiple to the Splits and stock issues
row in the split or issue year. The multiple
is determined as follows:
|
 |
For e.g. 1:4 splits, the multiple is 4
|
|
For stock issues, the multiple is the ratio of
the pre-issue share price and the post-issue share
price (calculator)
|
|
Compute the Stock issue multiple (for pre-split
or -issue years) by multiplying the following year´s
Splits and stock issues multiple with the
following year´s Stock issue multiple.
|
The next picture illustrates the adjustment process:
Notice that the order of these rows
may vary over the time.
The adjustment has a straight effect on the following
valuation items:
Number
of shares (Series I and II, diluted and average)
Share
price (Series I and II)
Dividend
per share (Series I and II)
So, in adjusting the above items to stock splits and
issues, different Valuation and Per share figures can
be computed in a meaningful manner.
Remember also dividend forecasts!
After these changes you probably have one more thing to
fix: you probably have estimated future dividends as an
absolute figure for a couple of future years. Therefore
you also have to manually adjust these to reflect new
situation. Of course it might be that your dividend estimates
are done with payout ratio and if that is the case, then
you do not have to adjust them as payout ratio estimates
are of course the same before and after the split.
|
