In a share split, a company increases its total share count by a fixed ratio. For example, in a 2-for-1 split, every existing share becomes two shares, and the share price is halved. In a 5-for-1 split, every share becomes five, and the price falls to one-fifth of its previous level.
The total market capitalisation of the company does not change immediately after a split — it is purely a cosmetic exercise. However, by reducing the share price, splits can improve accessibility for smaller retail investors who might have been priced out at the previous price level.
Splits are different from bonus issues: a split only involves subdividing existing shares and does not create new shares from reserves, whereas a bonus issue capitalises retained earnings into new equity.
In practice, companies that split their shares often enjoy improved liquidity after the split as more investors can afford to participate. The psychological appeal of a lower nominal price per share can attract broader retail interest.