How to Calculate the Basis for Multiple Stock Splits

by C. Taylor, studioD

Multiple stock splits increase the number of shares you have, but do not affect your total basis. As an example, if you invested $10,000 for 200 shares of a stock, you still have $10,000 invested even if a 2-for-1 split turns your 200 shares into 400. However, your cost basis per share does change, because you have more shares to divide among your original investment. Unless you sell all of your shares, you need to calculate the new cost basis per share, so your capital gains or loss may be accurately determined.

Multiply the number of shares you originally purchased by the original purchase price. This gives you the total purchase price. As an example, 200 shares of stock XYZ at $50 per share equates to $10,000.

Subtract any broker commissions you paid when purchasing the stock. In the example, if you paid $100 in commissions, your total cost basis would be $9,900.

Divide the total cost basis by the number of shares purchased. This determines the cost basis per share before the split. In the example, this gives you a cost basis per share of $49.50.

Determine the share multiplier, such as 2-for-1, which means you get two half-priced shares for every one you own. If the stock splits multiple times, multiply out the multipliers. In the example, if stock XYZ incurred a 2-for-1 split, followed by a 3-for-1 split, you would multiply 2/1 times 3/1 to get 6/1, or just 6.

Divide the cost basis per share by this multiplier. This calculates the cost basis per share after the split. In the example, $49.50 divided by 6 gives you a cost basis per share of $8.25. Although it appears as though your basis was reduced, you now have 1,200 shares, because your 200 shares are multiplied by the 6 multiplier. When you multiply the $8.25 cost basis by the 1,200 shares, you'll see you still have a total cost basis of $9,900.

About the Author

C. Taylor embarked on a professional writing career in 2009 and frequently writes about technology, science, business, finance, martial arts and the great outdoors. He writes for both online and offline publications, including the Journal of Asian Martial Arts, Samsung, Radio Shack, Motley Fool, Chron, Synonym and more. He received a Master of Science degree in wildlife biology from Clemson University and a Bachelor of Arts in biological sciences at College of Charleston. He also holds minors in statistics, physics and visual arts.

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