Face Value of a Share Cover

What is Face Value of Share? And Why is it Important?

Understand the Face Value of a Share: Some of the biggest challenges while entering the world of investing involves dealing with multiple jargons. In this article, we explain a very common confusion in the understanding of Face Value and other related terms.  

What is the Face Value of a Share?

The Face Value of a share in simple terms is the value of the share on paper i.e. the original cost of the share. The face value of the shares is also known as the nominal or par value of a share. When it comes to stocks the face value of a share will be mentioned in the share/bond certificate issued. If you already hold shares or know someone who does you can view the face value of the shares in the Demat Account. 

The face value for most shares in the Indian stock markets is set at INR 10. For example, here is the face value, market cap, and important value for ITC Ltd. (Source – TradeBrains Portal).

 

Face value from TradeBrains Portal

Who sets the Face Value?

The shares of Reliance have a face value of Rs. 10 whereas ITC has a face value of Rs. 1. If we take a look at the global markets Apple has a face value of $0.00001. So who sets this amount or through what computation do we arrive at this figure? 

First of all, it is important to understand that there is no fixed method or regulation for setting up the face value. These values are assigned arbitrarily by the company when the company gets listed on a stock exchange through an Initial Public Offer (IPO). 

The value however may affect the volatility of the shares in the market post the IPO. Take for example two companies ABC Ltd. and XYZ Ltd opt for an IPO to raise Rs. 1,00.000. ABC Ltd sets its share price at Rs. 10 and XYZ set its price at Rs. 1. This means that post the IPO ABC Ltd. will have 10,000 shares available in the market and XYZ Ltd. 1,00,000 shares. This means that there are more individual shares of XYZ Ltd. for purchase.

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What is the difference – Face Value vs Market Value?

Face value document

Another very important point to note is the difference between the face value and the market value of a share. These two have no relation and do not affect each other except in some special circumstances.

Let’s take again the example of the 3 companies mentioned above. The shares of Reliance, ITC, and Apple have a market value of Rs. 2005.35, Rs. 213.25 and $127.90 respectively. These values vary greatly from the face values we observed earlier. 

The Market Value is arrived at due to the factors of demand and supply for the particular share in the market. A greater demand oversupply would show an increase in the market value and vice versa the price will fall.

The shares we saw above have a high market price because they are highly demanded as long as they maintain good growth and give good return prospects. Their market value may fall too if the company begins performing poorly affecting the demand for the shares. The factors of demand and supply will have no impact on the face value of the shares.

Why is the Face Value Important? 

Multiple Dollar Notes

Being a prospective investor you must be wondering if the face value is not the price at which you eventually buy/sell the shares then why is it even important. The Face Value is used in the internal accounting for the company’s stock. One can find the face value used in the balance sheet to arrive at the total equity capital.

In addition to this, face-value also plays a very important role in corporate action. These include corporate actions like dividends, stock splits, reverse stock splits, etc. When it comes to dividends the face value sets a standard for the calculation of return rates or yield. Stock Splits on the other hand are one of the special occasions where both the face value and the market price are affected. 

Closing Thoughts

That’s all for this article. Let us know if the article helped in clearing doubts related Face Value of a stock.

You can read the difference between Face Value, Market Value & Book Value to get more insights. Also, comment on which other jargon you would like us to cover in our next post. Welcome to the world of investing. All the best!

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What is the difference between Face Value, Market Value & Book Value?

An overview of Face Value, Market Value & Book Value: Recently when I was navigating my Quora profile, I got an answer request for the question what is the difference between face value and market value of a company. Although both these are elementary terms related to stocks, however, they may be a little confusing for the beginners. Therefore, I decided to write a simple blog explaining the difference.

In this post, we are going to discuss the difference between Face Value, Market Value, and Book Value of a stock. Let’s start with the easiest.

Difference between Face Value, Market Value & Book Value

— Market Value

Market value per share is the current value of the stock. This is the price at which market values the stock. For example, if a stock is trading at a share price of Rs 100, then this is the market value per share of that company. The market value per share of a company fluctuates continuously throughout the trading time period.

Further, the total market value of a company, also referred as the market capitalization of the public company, is calculated by multiplying the current share price of the company by its total outstanding shares. 

face value and book value-min— Face Value

Face value (also known as par value) is the value of a company listed in its books and share certificate. The company decides the face value when it offers shares at the time of issuance. The face value of a share is fixed (until the company decides to split or reverse-split the shares).

For example, during the IPO of Avenue Supermart (Parent company of D’mart Supermarkets), the management decided the face value per share to be Rs 10. Here is the details:

D mart IPO-min

(Source: Avenue supermart IPO details- Chittorgarh)

In general, the face value of a company is lower than its market value. For example, when a company goes public, it can have a face value of Rs 10. And it may trade at a market price of Rs 500.

However, this case is not always true. For example, in the case of penny stocks, the face value of the company may be higher than its market value. Penny stocks are those companies which trade at a share price less than Rs 10. Therefore, here the market price may be Rs 5 and the face value of the company may be Rs 10.

Further, the face value of a company is not affected by whether the market price goes up or down. However, the face value of a company will reduce in the case of a stock split. For example, if the current face value of a company is Rs 10 and it announces a stock split in the ratio of 1:1. Then, the face value of that company will split in the same proportion. Here, the face value will change to Rs 5 as the total number of share doubles after the stock split.

Also read: Stock split vs bonus share – Basics of stock market

— Book Value

In simple words, the book value of a company theoretically means the total value of the company’s assets that shareholders will receive in case the company gets liquidated i.e. when all company’s assets get sold and all the liabilities are paid back to all the debt-holders. Therefore, book value can be considered as the net value of the company reflected in its books.

The book value is calculated as total assets minus intangible assets (patents, goodwill) and liabilities. When you divide the book value of a company by it the total number of outstanding shares, you arrive at the book value per share.

You can compare the book value per share of a company with its market price to find whether the company is under or overvalued. Further, its always advisable to invest in companies with growing book value over time.

For example- here is the book value of ASIAN PAINTS:

face value and book value-min

(Source: Moneycontrol)

Where to find these values?

The face value, book value and market value of a company can be found on almost all financial websites.

Whenever you open the company page on any financial websites, the first thing that you’ll notice is its market value per share. However, just by cruising a little, you can easily find face value and book value per share of the company. For example, here is the face value, market value and book value per share for Asian Paints. (Source- Screener).

screener face value market value and book value-min

(Source- Screener)

Similarly, you can use MoneyControl Website to find out the Face Value, Market Value & Book Value of a company:

MoneyControl Website to find out the Face Value, Market Value & Book Value of a company

(Source: Money Control)

Further, you can also find this information on other popular financial websites like Yahoo Finance, Marketsmojo, Equitymaster, etc.

Also read:

Closing Thoughts

By now, the meaning of face value, market value, and book value should be clear to you. All these three terms are different and one should not get confused among them while studying any company.

Market value per share is the current value at which the stock is trading in the market. Face value is the value of a company listed in its books of the company and share certificate. And finally, the book value of a company is the total value of the company’s assets that shareholders will receive in case the company gets liquidated.

That’s all for this post. I hope it was useful to you. Happy Investing!!