Which companies must report their financials to the public?

Just about any company you can invest in must follow financial reporting rules. That includes companies that are publicly traded, as explained earlier. But even some private companies, which haven’t sold stock, must provide some financial information if they have $10 million or more in assets and have 500 or more owners.

Most major stock market exchanges, including the New York Stock Exchange and NASDAQ, require their listed companies to provide quarterly and annual financial reports to investors. That includes foreign companies with shares of stock that trade on either exchange.

Some private companies offering generous stock option programs to employees often find themselves eventually having to start filing financial reports. Internet search company Alphabet (known for its Google search engine), for instance, was private for roughly six years after it was founded in 1998. The company quickly hit the $10 million threshold for total assets, meaning it was required to provide financial statements. At that time, Google decided it might as well become publicly traded and sell shares to investors in an IPO because it was going to have to report its financial statements. Google launched its IPO in August 2004.

Kicking it all off: Earnings season

Sports fans wait all year for the beginning of football, basketball, or baseball season. Children can’t help but anticipate the holiday season. But it’s earnings season that fundamental analysts look forward to.

Four times a year, shortly after the end of the quarter, companies will begin to report their financial results to investors. Because most companies are on a calendar year, the results generally start trickling out two weeks after the quarter ends. Four times a year, usually in January, April, July, and October, thousands of companies report their financial results en masse. These times of year are called earnings season.

Aluminum maker Alcoa had earned the unofficial designation as the company to kick off earnings season. The company’s advanced accounting system allows it to close its books very rapidly following the end of the quarter. Alcoa for years was the first stock in the storied Dow Jones Industrial Average to report its earnings each quarter. Alcoa was replaced in the Dow by shoe maker Nike in 2013, and now many investors see Nike’s report as the start of the earning season.

Not all companies follow a calendar year. For instance, retailers generally bring in a vast majority of their sales each year during December. For that reason, many retailers close their books at the end of January, to give them time to tally up their performance in December and give a full report for the year. When a company ends its year, for accounting purposes in a month other than December, it’s called a fiscal year. Nike’s fiscal year ends in May.

Getting the earnings press release

You don’t have to be a journalist to appreciate the earnings press release. Contrary to its name, the earnings press release is for all investors, not just the media. When it’s time for a company to tell the world how it did after the quarter ends, the first move is to issue an earnings press release. The press release is usually, but not always, accompanied by a conference call for investors and analysts. During the call, the management team will go over the quarter or year, describe the information in the earnings press release, and answer questions from the analysts who cover the company’s stock for research firms.

When you read or hear a company reported its financial results, the information almost always comes from the company’s earnings press release. While earnings press releases are technically unofficial and preliminary, they’re usually accurate enough for investors, analysts, and the news media to use the numbers immediately. It’s important to remember, though, that the earnings press release is not reviewed by an accountant or auditor.

When companies issue an earnings press release, they will often notify the regulators by filing a form 8-K. The 8-K filing is the official way to signal to the world that the company has released critical information.

Regulators do not directly stipulate what companies must say in earnings press releases. But generally, earnings press releases contain several key parts:

• Summary of the results: Most earnings press releases will give the numbers investors want most right at the top, maybe even in the headline. That includes the revenue and earnings the company generated during the quarter and how much it grew (or shrunk) from the same quarter last year.

  Be leery when a company brags about a quarter being a “record” quarter. Even if a company’s revenue rose to a record amount, its costs may have also run out of control and eaten into its earnings.

• Management comment: A member of the management team will usually opine on how the quarter went. As you might imagine, these statements are generally very carefully crafted, overly optimistic, and not particularly useful.
• Description of major business events during the year: Companies might break down — and even provide succinct bullet points — of the major accomplishments during the period.
• Guidance for the future: Most companies will often provide earnings guidance, or an estimate on how much the company might earn in the upcoming year or quarter. This guidance is important because it lets you know what the company expects in the near future.
• Financial statements: The earnings press release is the first glimpse investors will get of the company’s income statement and balance sheet. These statements are among the most critical documents for fundamental data you’ll get.

It’s a good idea, when reading an earnings press release, to bypass most everything except the financial statements. While earnings press releases are intended to be honest representations of a company’s performance, companies use the first parts of the earnings press release to put their performance in the best light. In contrast, the financial statements are the purest and least-biased parts of the press release.

Bracing for the 10-Q

Following the earnings press release, the next document to trickle out from the company is the 10-Q. The 10-Q is the official financial report submitted by a company to summarize its performance during the quarter.

Most companies have 40 days from the end of each fiscal quarter to produce and provide the 10-Q to investors. Generally, companies file the 10-Q a week or two after they provide the earnings press release. You can see the deadlines for the key financial documents in Table 4-1.

Both the earnings press release and 10-Q serve the same basic purpose: They tell investors how the company did, financially, during the quarter. But because the 10-Q is written primarily to satisfy regulatory requirements, it’s usually much more straightforward and contains less spin.

The 10-Q must be filed with the chief regulator of the financial markets, the SEC. As a result, companies are careful to include the following key components:

• Financial statements: Companies don’t waste any time getting straight to the point with the 10-Q. The key financial statements are presented right at the top, while they’re usually at the bottom of earnings press releases.

  Don’t make the mistake of assuming because you read the earnings press release, you don’t need to bother with the 10-Q. The 10-Q usually goes into greater detail than the press release, not because companies feel like spilling the beans, but because these documents are filed with regulators. For instance, a vast majority of companies don’t include a statement of cash flows in the earnings press release. The statement of cash flows, however, must be included in the 10-Q. As you’ll discover in Chapter 7, the statement of cash flows is an extremely important document used in financial analysis.

• Footnotes: Just as some books just don’t fit correctly in your bookshelf, some financial information doesn’t slip nicely into the financial statements. Unusual or noteworthy financial events might require more description than will fit into the financial statements, and those are available in the footnotes in the 10-Q.

  Never skip the footnotes. Companies will often throw items in the footnotes, hoping you’ll miss them as an investor. Remember Enron, the energy company that failed in 2001, still considered one of the biggest corporate frauds in U.S. history? The company stuffed much of the information about its cryptic partnerships in the footnotes.

• Management’s discussion and analysis of financial condition: This section of the 10-Q is usually called the MD&A. In the MD&A, management steps investors through its financial results for the quarter. The narrative is usually stripped down and, well, straightforward because executives know the SEC will review it. So they don’t want to say anything that may haunt them later.
• Controls and procedures: The company will let investors know if they found any problems in the way they monitor their accounting and present the information to investors. Following the accounting scandal at Enron, new rules from the Sarbanes–Oxley Act of 2002 forced companies to make sure they had adequate controls in place over their accounting. Many companies fought tooth-and-nail to avoid these rules. You might as well read them.
• Other information: Here, companies can throw in other material that might be of note to investors. This may include any pending litigation or whether the company sold additional stock, or is having trouble paying interest on its debt.

Many investors don’t realize a company’s 10-Q is not officially audited by a third-party accounting firm. That doesn’t mean you can’t necessarily trust the numbers; just know a little more skepticism isn’t a bad idea.

Running through the 10-K

If you’ve ever run a 10-K race, you know that it can be pretty grueling if you haven’t trained properly. The same goes for companies looking to report their annual financial performance in the form called the 10-K. This document is a monster, and producing it is one of the biggest financial chores a company faces. It’s also the most comprehensive piece of fundamental data you’ll get as an investor. Most companies are required to release their 10-K filings within 75 days from the end of their fiscal year. Some smaller companies, though, have 90 days to comply with the rules.

Due to the complexity of producing a 10-K, there can be a significant delay between the end of the calendar year and the time the report gets released.

The 10-K is kind of like a company’s annual review. The level of detail of the 10-K is exhaustive, and unless you know what you’re looking for, it’s easy to get lost in the hundreds of pages of tables and text.

That’s why fundamental analysts rarely curl up with a 10-K and read it from start to finish like a novel. They just know how to skip around in a 10-K and look for these key elements:

• Everything in the 10-Q, just for the whole year: All the data you get in the 10-Q for the quarter, you get for the year in the 10-K. That includes the financial statements and legal proceedings, but also, a more expanded MD&A where the management team explains more fully how the year progressed. The controls and procedures section may also be more fleshed out, because the 10-K has been checked over by the auditors.
• Changes in accounting and disagreements with accountants: You might not expect to see conflict and intrigue in a company’s financial report, but sometimes you can find it here. Companies and their accountants will state in this section whether or not they didn’t see eye to eye on financial reporting matters.
• Long-term financial data: Companies give you the financial results for the year that just ended. But you’ll also find data for the past three, five, or even ten years. These data are very useful when looking for trends, or changes in fundamentals like revenue and earnings.
• Business summary: Here, the company lays out the nitty-gritty of what it does for a living. The company may break down its major business units and even, in some cases, tell you which parts of the business are the most profitable. You’ll find out how to study the profitability of a company’s units in Chapter 5.
• Risk factors: Imagine showing up to pick up a date, but before you leave for the movies, he or she sits you down with a huge list of everything that’s wrong with themselves. That should would save quite a bit of time. Yet that’s precisely what companies must do in their 10-Ks. If there’s a known factor that could impair a company’s fundamentals, it is required to tell you about it here.
• Auditor’s opinion: Close to the bottom of the 10-K, the accountants will need to sign off on the books to indicate they reasonably reflect the financial condition of the firm.

When reviewing a 10-K, always read the auditor’s opinion. The statement from the auditor can be telling. While an auditor may not wave a red flag and tell you not to buy stock, you can read between the lines. For instance, if you see the word qualified, watch out. That means the auditor has some issues with the way the books are kept, so you should too. Also, be careful when an auditor says a company may not be able to remain a going concern. That’s accounting talk for, “This company might not make it.”

Flipping through the annual report (if there is one)

If you visit a CEO’s office, you might see the company’s annual report sitting on the coffee table. Some companies still print annual reports. The annual report is essentially the 10-K, but formatted like a magazine. There might be lovely photos of smiling executives, employees, and customers. Even the financial statements are given a facelift, usually printed on luxurious paper using an elegant font or in a fancy website. The annual report is usually released several months after the 10-K is published, often landing around the time companies have their shareholders’ meetings. But although 10-K filings are required, annual reports are optional, so every year, fewer companies are producing them, instead pointing investors to their 10-K filings.

Unlike the 10-Q and 10-K, which you can download directly from the SEC’s website, the annual report is obtained directly from the company either through the mail in paper or on the company’s website. If you call a company, it will usually be happy to mail you a copy. You can also usually view an electronic form of the paper annual report by downloading it from the company’s website. AnnualReports.com also makes them available online.

The annual report is the glossy and slick version of the 10-K. Companies produce the annual report mainly to hand out to employees and customers while courting them.

The annual report is the management team’s opportunity to put its spin on how the year went. Most annual reports, for instance, begin with a letter to shareholders that is generally very hopeful, even after a dismal year.

There’s no proxy like the proxy statement

If you’re looking for the most salacious statement released by companies, that must be the proxy statement. The proxy statement is a document the SEC requires companies to distribute to shareholders ahead of the annual shareholder meeting. It’s kind of like the absentee ballot you might get prior to a presidential election.

Shareholder meetings happen every year as companies gather shareholders, usually in the spring, to go over their initiatives and goals. The proxy is sometimes known by its regulatory name, 14A, named after the portion of the SEC rules that stipulate what it must contain.

The proxy statement is fascinating reading because it lays out all the most sensitive information most companies have to offer, including:

• Executive compensation: Want to find out how much a CEO gets paid? The proxy is your document. Not only are the annual salaries of the top executives spelled out, but the amounts of their bonuses, too. You’ll also find out how much more the CEO gets paid than the median employee.
• Corporate matters subject to a vote: Companies’ proxies contain a section that looks almost like a ballot. There will be a number of measures that require shareholder approval. Usually, the items up for a vote include the selection of the auditing firm, and the board members standing for reelection on the board.
• Shareholder proposals: If a company has any ill will with shareholders, it will become very clear in the proxy. Dissident shareholders may offer proposals to replace the management team. Other investors might lobby for the company to adopt more socially responsible business practices.
• Related-party transactions: This is one of my favorite parts of the proxy. It shows whether any of the company’s officers or directors have business relationships with it. Individuals that have business relationships with the company, in theory, may have trouble being impartial because there’s a potential conflict of interest.

The proxy is so important to fundamental analysis that you can explore it more fully in Chapter 9.

Operating activities: Finding smooth operators

A company’s operations get the most attention. Typically, when you hear a company is or is not “doing well,” that is a reference to the firm’s operating activities.

Simply stated, a company’s operations are the process of converting raw materials into products that are, hopefully, sold to customers for a profit. Many elements go into operations, including effective new product development, which generates revenue, in addition to cost control, marketing, and manufacturing. The income statement, explored more in Chapter 5, lets you see how well a company is operating.

Investing activities: You have to spend money to make money

Unless they’ve found a goose that lays platinum eggs, all companies, at some point, must put money back into their business. Equipment used to make products wears out and needs to be replaced. Companies outgrow their headquarters and must acquire a bigger building. It’s common for companies to overhaul their computer systems to keep up with tracking their business.

When companies spend money to make more money, they’re investing in their future. And while investing is a necessary part of doing business, it can also be done poorly. Companies might spend too much for equipment they didn’t need. Or worse, they might overexpand, resulting in a glut of their product, which hurts their profits. You can read more about profit margins in Chapter 5. There are two key things for a fundamental analyst to monitor when it comes to investment:

• Is the return on the investment adequate? If a company is spending money to expand, and revenue and profit aren’t growing too, you might be throwing your money down the drain as an investor.
• Is the company using the equipment it has bought? In business, having too much capacity is not a good idea. You don’t want to spend money renting a warehouse, for instance, if it’s usually empty.

Financing activities: Getting in tune with high finance

So, you can understand how a company operates and how much it’s investing in itself. But who’s going to pay for all this stuff? That’s the final and critical element that accounting helps you with.

Generally speaking, companies can finance, or fund their operations, in two ways. They can either rustle up investors, or they can borrow money. Investors provide money, called equity capital, to companies in exchange for a piece of the company. If all goes well, the company operates extremely well, profits soar, and investors are very happy because their share of the company will be worth more. When you buy stock in a company, you are an investor.

Some beginning investors incorrectly think money they use when buying a stock goes directly to the company. That’s not usually the case. Companies sell their stock to the public once, in a process called an initial public offering, or IPO. When those shares sell for that first time, the companies get that money. But after the IPO, the company doesn’t get additional cash. The shares and money are trading hands between other investors in the secondary market.

Selling stock is a great way for companies to raise money with no strings attached. The company sells the stock and the investors hand over cash. But selling stock can be costly in the long run, especially if the company does well. When the profits come pouring in — the original owners must share the profits with the shareholders.

To avoid having to share ownership of the company, some companies might look to borrow money instead. Companies may borrow money from a local bank or sell IOUs, called bonds, to the public. Investors who lend money to a company simply want to get their money back, plus an amount of interest agreed upon ahead of time. If the company winds up doing fabulously well, the lenders only get the pre-agreed upon interest payments and not a penny more. The drawback, though, is that borrowers demand market interest rates and companies must pay on time or the company could go into default. Default is when a company can no longer afford to pay the interest on its debt and can lead to a company’s filing for bankruptcy protection or even liquidating, or selling off all its assets.

If a company defaults, investors and lenders are treated very differently. The difference has a big influence on whether or not you decide to buy a company’s stock or bonds.

If a company is unable to keep paying interest to its lenders, the company goes into default. Typically, at that point, the bondholders take control of the company. In the worst-case scenario, when a company cannot be saved, bondholders get repaid first. So, let’s say a company defaulted and had a giant garage sale to sell its desks and chairs. The money would be used to pay back debt holders before stock investors see a penny. That means, as stock investors, you’re accepting the possibility that you can lose your entire investment.

Learning a key fundamental math skill: Percentage changes

If you’ve noticed so far, I’ve tried to spare you from much ugly math in the first couple of pages. It’s time to start crunching some numbers.

There’s one math skill that you’ll encounter so frequently in fundamental analysis, you might as well tackle it now. That’s the concept of percentage change. Because fundamental analysis is infatuated with looking at increases and decreases in business factors, such as sales and revenues, the percentage change is a way to put gains and declines into context. For instance, if I told you that the price of a sweater rose $40 this year, that doesn’t tell you much. But if I told you the price was $60 before, then you know that the price jumped 67 percent to $100.

You calculate a percentage change this way:

((New number – old number) ÷ old number) × 100

Going back to the sweater example, the new price is $100 and the old price was $60, so:

((100 – 60) ÷ 40) × 100 = 100 percent

For those of you who don’t think parentheses and math belong together, here’s a mantra to help you remember it: “New minus old divided by old.”

If you like the mantra better, follow these steps:

1. “New minus old:” Subtract the new number by the old one. That’s 100 minus 60, or 40.
2. “Divide by old:” Take the answer from step 1 and divide by the old number. Divide the 40 you got from step 1 by the old number, 60. That’s 0.67.
3. Convert to a percentage. Take the answer from step 2 and multiply by 100. That gives you a 66.7 percent increase, which is the 1 from step 2 multiplied by 100.

If a value rises by 100 percent, then it has doubled. Similarly, if a number rises by 200 percent, it has tripled and 300 percent, quadrupled. Some make the mistake, for instance, of seeing the 2 in the 200 percent and saying it has doubled when it has in fact, tripled.

Getting acquainted with the SEC’s database

You can spend thousands of dollars for access to websites that provide fundamental data. But really, to get started, you don’t have to spend a dime.

The SEC’s website at www.sec.gov is a treasure trove for fundamental analysis. You’ll find all the financial forms discussed earlier in this chapter, and then some. All the fundamental data are stored in the SEC’s Electronic Data Gathering, Analysis and Retrieval, or EDGAR, database. You can use EDGAR to look up any public company’s filings and even download the financial statements to your computer so you can do further analysis.

Step-by-step directions on accessing company fundamentals using EDGAR

Now that you know how powerful EDGAR is, it’s time to dive in and discover how to get what you need from it. For the following example, I’ll show you how to get the 10-Q, 10-K and proxy statement for General Electric. Just follow these steps:

1. Log into the SEC’s website at www.sec.gov.
2. Hover over the Filings link on the upper right-hand corner of the page, and choose the EDGAR – Search & Access option from the drop-down menu.
3. Click the EDGAR full text search link.

4. Enter the name of the company in the Company name blank.

   It’s the large blank in the page as shown in Figure 4-1. Type in general electric for this example. If you know the company’s symbol, GE in our example, you can enter that in the blank, too.

5. Choose the company name.

   Because General Electric has separate business units, you may see companies like General Electric Capital Assurance Co. But you want the main company, so click where it says General Electric Co.

6. Click the form you want.

   If you want GE’s 10-Q, scroll down until you see the form 10-Q (Quarterly Report) listed and click the link. If you want the 10-K, choose 10-K (Annual Report), and the proxy is marked as DEF 14-A (Proxy Materials). You’ll be taken to a page outlining everything contained in that filing.

7. Click the Open Document link under the document title page.

   Pressing the Open document button will put the filing you’re looking for on your screen in a form you can read right away. The Open filing button, on the other hand, lets you see all the individual elements in the company’s entire filing and view the parts you’re interested in.

When you’re scrolling down through the list of forms after clicking the Open filing button, you might notice that some have a blue button that says Interactive Data. These forms are presented in a special format that computers can read, called eXtensive Business Reporting Language or XBRL. Financial statements available in XBRL can be easily processed and downloaded. If you click the Interactive Data button, you’ll be moved to an area of the SEC’s website that lets you view financial reports using XBRL. You can easily skip between the income statement and balance sheet without scrolling, for instance. XBRL also lets you easily download the financial statements to a spreadsheet. Because companies are not required to file using XBRL, only a few do. But that’s changing.

Most of the major web portals, such as Yahoo!, at http://finance.yahoo.com, and MSN Money, at http://msn.com/en-us/money, provide summaries of companies’ primary financial statements. Most companies, too, put their financial data on their websites. But as a fundamental analyst, it’s important to know how to get the data direct from the source: The SEC’s EDGAR database.

Pulling fundamental data from websites into spreadsheets

Sometimes reading a company’s financial statements using the SEC’s EDGAR database isn’t enough. If you want to perform the analysis you’ll find out about in the next part of this book, you’ll likely need to download the data into a spreadsheet.

If the company you’re analyzing provides XBRL data, it’s easy to download into a spreadsheet.

Luckily, there’s a handy trick using Microsoft Excel all fundamental analysts should know about. While it’s possible to cut-and-paste the financial data from a company filing into a spreadsheet, the results can be a disorganized mess. Instead, use an Excel function that’s built to order. Here’s how to do it in Office 365 (older versions may work slightly differently):

1. Open the SEC document.

   Find the filing you’re interested in downloading using the steps in the preceding section. Copy the web address from the address bar in your browser by highlighting the address and holding the Control button and the C key.

2. Open Microsoft Excel.

3. Instruct Excel to find the filing.

   Choose Excel’s Data menu on the ribbon and click the Get Data option on the left-hand side of the screen. You’ll see another menu pop up. Choose From Other Sources and then From Web. A new window, From Web, will pop up.

4. Enter the Web address of the filing into the From Web window.

   Paste the filing’s address by holding down the Control button and choose the V key, in the address bar.

5. Import the filing.

   Click the OK button at the bottom of the From Web page in Excel.

6. Select the relevant financial data.

   Select Document on the left side of the Navigator pane. And then select the Web View tab on the right side. Scroll down in the window in Excel until you see the financial data highlighted in green that you would like to download. Click the green area and click the Load button.

After you follow these steps, the financial information you want, such as the company’s income statement or balance sheet, will automatically appear in a spreadsheet. This will be a handy skill that can help you with the analysis you’d do later in the book.

Finding stocks’ dividend histories

Dividends are periodic cash payments some companies make to their shareholders. The dividends are paid out of the company’s cash as a way of returning profits to the shareholders. Dividends are a very important piece of your total return on an investment.

Don’t ignore dividends. These cash payments, over time, account for about one-third of the total return investors make on the market, according to S&P Global Market Intelligence. The remaining two-thirds of total return come from the stock price rising. During difficult times for the stock market, when stock prices fall, the dividends might be the only gains you get.

Dividends are also important ways to help value a company, as you will discover in Chapter 8. Companies that pay dividends generally pay them quarterly.

The best way to look up a dividend history is on the company’s website. Nearly all companies provide an area of their websites where dividend payment histories can be looked up. The Bing search engine can save you a step finding this corner of companies’ websites. From Bing.com enter the name of the company and “dividend history.” Many times, you’ll be given a link that takes you directly to the company’s website that lists all the dividends paid.

You can also navigate to the dividend history by finding the investor relations section of a company’s website. Going back to the GE example, go to www.ge.com and hover over the “investor” link at the top of the page. Next, click the Stock link on the left-hand side. Scroll down and you’ll find GE’s Dividend History, which lists GE’s dividend payments going back to 1941.

Getting stock-split information

Money for nothing is hard to find on Wall Street. But sometimes investors get additional shares — well, sort of. When a company’s stock price rises dramatically and begins to approach $50 a share or more, the executives might decide to split the shares. In a stock split, the company cuts its share price, say in half, by cutting the shares into multiple shares. For instance, let’s say you own 100 shares in a stock trading for $60 a share. If the company has a 2-for-1 split, you will suddenly have 200 shares, but they’ll be worth $30 apiece. Management feels some investors are more likely to buy stock in a company for $30 a share than $60.

The theory goes that some naïve investors, who read too much into a stock’s per-share price, might assume a stock trading for $50 or more is too expensive.

Some investors assume that a stock split is a major boon because they suddenly have more shares. But, as discussed in Chapter 3, the per-share price of a stock doesn’t tell you much. The value of your shares is still $6,000, whether you own 100 shares at $60 or 200 shares at $30 a share. The company’s market value also stays the same.

Understanding when stock splits occur is important for fundamental analysis, though, Because it can affect the number of shares outstanding, which is described in Chapter 3. You’ll need an accurate count of shares outstanding to do some of the fundamental analysis later in the book.

Fortunately, many companies provide stock-split histories on their websites. But not all do — and you might want to look up stock splits at multiple companies without navigating to several investor relations websites. That’s where other online tools can help you find when splits happened and how many shares were affected.

Yahoo! Finance helps you look up if, and when, a company split its shares. Here’s how:

1. Log into http://finance.yahoo.com.

2. Enter the name of the company or symbol in the Quote Lookup blank and click the name of the company.

   For GE, for instance, enter GE and click the General Electric link.

3. Click the Chart heading on the left side of the screen.

   This will take you to Yahoo! Finance’s advanced charting feature.

4. Choose the timeframe.

   If you want to see all the company’s splits in its history, choose Max. You can tweak the timeframe of the chart by changing the Date Range option.

5. Observe the chart.

   If the stock has been split, you’ll see a small black square with the letter S in the center on the bottom of the stock chart. For instance, the chart tells you that GE last split its stock, by 1 for 8, on August 2, 2021. Notice it was a 1 for 8 split, not 8 for 1. It makes a huge difference. In GE’s case, it was a reverse stock split. Instead of increasing the number of shares and cutting the stock price, GE did the opposite: It cut the number of shares by nearly 90 percent, and then increased the stock price by eight times. Investors wound up with fewer shares that were worth more. But the value of their total stake in the company stayed the same from before the reverse split. A reverse stock split is something companies do when the stock price has been falling a long time and management wants to make the stock look less beat up. The fact the once-mighty GE did a reverse split is kind of sad actually.