Face Value of a Share
As the name suggests, face value of a share is the nominal value on the face of the share certificate. It is the par value as fixed by the company at the time of its issuance. This concept has wide application to stock market as well as bonds. The investors dealing in stock and bond market need to understand face value of shares.
How does the face value work?
Face value is assigned in an arbitrary manner by the company. It is utilized for calculation of accounting value of the stock of the company so that it can be used in the balance sheet.
All companies follow the practice of issuing shares along with a fixed value known as the face value of the share. It is also known as par value of share. The company issues share certificate to the shareholders containing details of shares. The face value of the share is clearly indicated on this share certificate for easy reference and evidence. Mostly, the shares of Indian companies have a face value of Rs. 10.
What is the importance of face value of share?
It is a useful component in the calculations of bonds and stock. It is also used in the computation of payment of interest, market values, premiums and returns.
Difference between face value and market value of share
An important aspect must always be noted by a share investor. The face value of share does not have any relationship with the market value of share. Both are different aspects. If you are also investing in bonds, then you must keep in mind the difference between the same with regard to face value. The face value of bond is influential in deciding the earning of profits. However, the face value of share does not have a role in the market value of share.
The market value of shares fluctuates according to the market situations. But the face value of share is fixed in nature. It does not change and remains the same as specified in the share certificate and the company books.
Splitting of the face value of share
A Face value or par value of the company share always remains the same, irrespective of the market price of that share. Companies have to right to split the face value of the share to Rs. 5, 2 or 1 to bring more volatility to the share.
Importance of face value of shares to the investors
We have understood the significance of face value for the companies and related calculations. But how is it going to help you? Well, as an investor, you need not much bother about the face value of share. Investors have to keep track on the fluctuations of the market prices of shares. And please note that the market value of shares does not fall till its face value. Hence, the face value is not of much significance for the investors. But the investor must surely understand the difference between face value and market value of share and not get confused with it.
Thus, face value of share is advantageous to the companies and is fixed in nature.