What is the Face Value of the Share? Importance, Example

July 8, 2022
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Face Value is the value written on the face of the Share Certificate.

The face value of a share is known as Par Value

On What basis do dividends get declared?

On What do companies go ahead with stock Split?

After reading this post you will come to know about all these questions?

If you are a beginner in investing, then you should know about the fundament concept of share and face value.

As an investor, you must understand the fundamental concept of share and bond face value. It is simply the cost of purchasing stock in a particular company. It is that price at which the promoter of the company has purchased the stock.

Face value, also known as the par value, is the value of the company as it appears in its books and share certificates. It is determined by the company when it decides to issue shares and bonds.

It is fixed and written over the share certificate.

Let’s look down at an example so that you would be cleared through what is the face value of a shared example.

In the books of accounts, it is generally 1, 2, 5, and 10. Let’s look down at the IPO of DMART and try to understand the concept of the face value of a share. A single stock of DMART has a face value of Rs10. The issue price is Rs.300

Now see at which price you and I can buy the stock? and at which price Mr. Radha Kishan Damani (Promotor of DMART) has purchased the stock?

So we will get stock for Rs.300 and Mr. Radha Kishan Damani has given Rs.10 for a single stock.

Since he is a shareholder in the company right at the start so he can ask another investor for a much higher price. The difference between the issue price (Rs.300) and the face value (Rs.10) is premium.

so, Face Value + Premium = Issue Price or Market Price

The premium over face value is not fixed. It is determined by the company’s potential for growth, profits, and sales figures.

Face Value v/s Market Value

Face Value is fixed whereas the Market value of a share depends on the demand and supply of the market.

The company determines its face value at the time of its formation of the company. Where market value is determined by the investors.

Face Value is the stock’s nominal value at the time of issuance. Market Value is the current stock exchange price of the stocks.

It is impossible to calculate because the face value is determined by the company.

Market value is calculated by dividing the total market value of the company by the total number of shares issued.

Use of Face Value in Dividends

Management of the company: We are declaring a 200% dividend of the stock.

What does it mean?

Now you can answer that 200% of Face Value, not the market value. Management considers face value as their base value.

A dividend is a reward paid to shareholders by a publicly-traded company, and it can be a source of passive income for you that you do not have to work for.

Use of Face Value in Stock Split

Management: We are announcing the Stock Split of a ratio of 1:5.

Yesterday we had 1 share of JUBILANT FOOD now, I have 5 shares of JUBILANT FOOD.

What just happened overnight.

Answer: 1 Stock has split into 5 stocks carrying which hold the same face value.

The face value of a share is usually fixed. If the company wants to increase the number of shares the face value will be lowered.

For example, the JUBILANT FOOD share price is Rs.3000 and has a face value of Rs.10. If the company divides one share into five, the market value per share will be Rs.600, and the face value will be Rs. 2.

Final Words on Face Value

When trading or investing in stocks, terms like face value and market value become essential. It is critical to understand these terms to trade effectively and generate wealth from the stock market.

We hope We gave you some insights about face value and delivered them in the best possible way.

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