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What is a Face value of a Share?

face value of a share

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.

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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.

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  1. Ohk I got the difference. The question that arises in my mind is this: consider a hypothetical situation where the market value goes below face value. In that case, how much is the company liable to pay, the market value or face value? As far as my knowledge goes, shares appear on the liability side of the balance sheet with face value taken into account. So if the company goes bankrupt, it should actually owe money equal to the face value of the shares. Am I correct?

  2. The original cost of a share which is shown on the certificate is the face value of a share i.e. The value shown at the time of listing of shares. It is the maximum liability on a share held by a stockholder. The article is extremely useful for those who have no knowledge about shares and the basic concepts related to shares. Great job! I got to know a lot about the same through this article. Thank you Ankita!

  3. This article will be quiet beneficial for the one’s who have no knowledge about shares. Basically, face value of the share is the original cost of the share . It’s differentiation done with the market value is quite simple and is informative too. As always the author has been providing us with all the necessary and the core details regarding every topic for which she writes.

  4. Face value is the value of the share when it is listed in the stock market by the company. It does not fluctuates as the market value. So is face value always constant? As per my knowledge it fall when the company performs poorly or becomes bankrupt. What does spitting of face value does or what is volatility of shares?

  5. Shares need to have a starting point in their value and starting point is a face value of the share, if I got that correctly. However, a face value of a share has a bigger impact on companies than on investors. An investor should always concentrate on the market value of the share. Great article with a lot of useful information.

  6. Vandana face value remains the same unless the board decides to split the shares and it varies according to the ratio of split.

    If the market value goes below that…it means the company is in very bad shape.

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