Raises the Share Price

• In a one-for-four reverse stock split, a shareholder owning 40,000 shares of a company at $5 a share would wind up owning 10,000 shares at $20 a share. In a one-for-two reverse stock split, the owner would have 20,000 shares valued at $10 a share.
  
  

Attracts Investors

• Companies often want to raise their share price to attract large investors. If a company does a reverse stock split to raise the share price, and that increases demand for the stock, it could lead to a higher stock price.
  
  

Shareholders Are Cashed Out

• Reverse stock splits can effectively cause some small shareholders to get "cashed out." If they are cashed out those stockholders will no longer own any of the corporation's shares. For instance, in a 1-for-100 reverse stock split, shareholders with less than 100 shares would end up with none.