Occasionally, the number of shares outstanding may be reduced, which is referred to as:

The correct answer is A. reverse split. A reverse split directly reduces the number of shares outstanding by consolidating existing shares into fewer shares at a higher price per share (e.g., a 1-for-10 reverse split converts 100 shares into 10). Option B ("disposal rate") is not a standard financial term for share…

Question

Options

Areverse split
Bdisposal rate
Cstock dividend
Dcapital reduction

How the community answered

(32 responses)

A
81% (26)
B
3% (1)
C
9% (3)
D
6% (2)

Explanation

A reverse split directly reduces the number of shares outstanding by consolidating existing shares into fewer shares at a higher price per share (e.g., a 1-for-10 reverse split converts 100 shares into 10). Option B ("disposal rate") is not a standard financial term for share reduction. Option C ("stock dividend") does the opposite - it increases shares outstanding by distributing additional shares to existing holders. Option D ("capital reduction") involves reducing a company's equity capital, but the term specifically refers to reducing the capital account (often by returning cash to shareholders or writing off losses), not necessarily the share count itself.

Memory tip: Think of "reverse" as going backwards - instead of splitting one share into many (a regular stock split), a reverse split merges many shares back into one. The word "reverse" signals the opposite of growth in share count.

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