When you start investing in stocks, the first thing to comprehend is the share’s face value in the stock market. It is also referred to as the par value, and it’s determined at the time the stock is issued. In the stock market Face Value is a financial term used to describe the nominal value of a security. In the case of stocks, Face Value is a jargon standing for the original cost of the stock, as listed in the certificate.
The face value of stocks and bonds is a fundamental concept of the stock market. When publicly traded firms offer stock through Initial Public Offerings (IPOs), the face value is fixed. It refers to the price at which a company’s stock can be bought. Similarly, a firm can raise capital or funds through the issuance of bonds. Face value is also termed as the par value, referring to its value as recorded in its book/digital records and share certificates. When a firm initiates the issuance of shares and bonds, the Face Value is set up.
Share or Bond Certificate
Companies issue shares and bonds with a defined value, it is known as face value. The face value of a company’s shares is determined by a variety of factors. In most cases, the corporation assigns it. Share certificates; the documents issued by companies that sell shares in the share market. The share or bond certificate contains the Face value, class of shares, issue dates, and more on the shares of a company.
From the standpoint of the firm, assigning face value is highly essential allowing the organization to compute the accounting value of its shares. This number is further utilized in the company’s balance sheet. The face value of the shares and bonds is clearly stated on the share/bond certificate. Furthermore, for an investor to begin with trading stocks, it is necessary to determine the face value of the shares.
Importance of Face value
Face value stands as a focal point in the stock market. The Face Value withholds a high significance around investing, the stock exchanges, shares, and bonds. The following factors portray the importance of Face Value in the share market.
- Face Value determines the stock’s current market value.
- It assists the process of calculating a premium.
- It plays a vital role in calculating profits.
- It is essential to calculate interest rates.
Difference between the Face value and Market value
Face Value and Market Value have major differences on a whole in the stock market, and it elaborated in the table below.
|Face Value||Market Value|
|Meaning||1.It is the stock’s nominal value at the time of issuance.||1.It is the current stock market price as quoted on the stock exchange.|
|Price Determination||2.The corporation determines the pricing of share and bond face value.||2.Market value changes with the effect of prices the equities have been purchased in stock exchanges.|
|Price Fluctuations||3. Market conditions have no effect on Face Value.||3. Depending on market conditions, the market value can fluctuate. Price fluctuations can occur due to changes in macroeconomic data, government policies, and global events.|
|Calculations||4. Face value is equal to the equity share capital divided by the number of outstanding shares.||4. Market value is calculated by multiplying the current stock price with the number of outstanding shares.|
Book Value: Book value is a similar stock market terminology that is closely related to Face Value and Market Value. It refers to the value of the company’s shares on its books. Book Value is calculated when the company’s net value, or the difference between its assets and liabilities, is divided by the number of issued shares.
Modifying the Face Value of Stocks:
Corporate actions, such as stock splits, can modify the face value of shares. When a firm splits its stock, it divides the current shares into smaller units having a lower face value.
Example: If a corporation with a face value of Rs 20 per share announces a 1:1 stock split, one current stock will be split into two units, each with a face value of Rs 10.
Q1. How is a share’s face value determined?
A company’s net value, or the difference between its assets and liabilities, is divided by the number of issued shares determines the Face Value of a share.
Q2. What is the face value of an initial public offering (IPO) share?
When a company issues an initial public offering, the face value, also known as the par value or nominal value, is the fixed value of the share determined by the firm (IPO). An initial public offering (IPO) is the process by which a company raises capital for development and expansion (IPO).
Q3. Is it possible for Face’s value to start to rise?
Bypassing a shareholder vote and changing the Capital Clause of the Memorandum of Association, the face value of shares can be enhanced. If the firm is publicly traded, this will necessitate the submission of several forms with the Registrar of Companies as well as with the Stock Exchange.
Q4. What is the minimum face value of a share?
The corporations are formed with a face value of INR 10, but the majority of them have a face value of INR 100 or INR 1. SEBI, which governs the requirements for listing a public limited company on a stock exchange, has established a minimum face value of INR 1.
Q5. How can the share’s face value be reduced?
This can be accomplished with or without the extinguishment or reduction of liability on any of the company’s shares. (For example, fully paid-up shares with a face value of INR 100 can be reduced to INR 75 apiece by paying back INR 25 per share.)
Q6. What is a bond’s par value?
A bond’s par value is its face value. The stock value indicated in the corporate charter is referred to as the par value of a share. The par value of shares is frequently zero or very low, such as one cent per share. When it comes to equity, the par value has very little to do with the market price of the shares.