What is Face Value of Share?

A lot of questions arise when you hear the term face value of the share, people often link it with the most common financial term share price but the reality is different. The face value of a share is the original cost of stock issued during the registration of the company.

It is also known as the par value and it is calculated when stock is issued to the company. And it usually remains independent of the current market conditions until the company wants to split the stocks.  It's helpful for accounting purposes like maintaining records and keeping things transparent.  

Face Value Vs. Share Price

The share price is displayed on the stock exchange when the company goes for an IPO. The value of share price is subject to market conditions as it can vary as per the demand and supply in the market.

But when it comes to the face value of shares then it remains the same most of the time. It is usually used while investing, exchanging stocks, or buying shares or bonds. It helps in evaluating the value of a share to make better decisions. 

Note: The face value of the share is always less than the share price.

Formula to Calculate Face Value of Share

The face value of a share can be easily calculated using the given formula : 

Face Value of Share = Equity Share Capital / Outstanding Share Numbers

For Example: Equity Share Capital =  1000

Outstanding Share Numbers = 10

Therefore face value of share =  1000/10 = 100

Equity share capital is a financial term that refers to the amount of money a company generates after selling its shares. It helps the company to work on its plans and stay ahead of the competition.

Outstanding Share Numbers tell us about the number of shares allocated to the investors, general public or shareholders. You can easily find the outstanding shares of a company by visiting the company’s website.

Also, Read: How to check IPO Allotment Status in Groww App

Face Value Significance

The face value is a financial term that holds great importance among investors. It helps the investors to make better decisions about their future investments. It comes with the following advantages :

• It is used to determine the financial ratios.
• It helps in determining the initial capital of a company after the shares have been raised.
• It shows the net worth of a company during the initial time of investment.
• It's also helpful when a company wants to issue new shares to existing shareholders known as stock split.
• It helps in determining the share premium of a company. Share premium is the amount that is calculated by subtracting par value from the share price.
• It plays an important role in calculating the dividend. A dividend means the distribution of earnings by the company to its shareholders.

FAQ’s

Q.1 Is Par Value the same as Face Value?

Ans. Yes, it's right both represent the same thing. Face Value doesn’t change, it can only be changed when the company wants to split the shares.

Q. 2 Which face value is good, 1 or 10? 

Ans. Normally all the companies set their face value to Rs. 10. The only difference is that a company with a lower value like Rs.1 is accessible to small investors as well. Companies set the par value low to get more investors.

Q. 3 What is book value?

Ans.  The book value refers to the net assets of a company, it is calculated after subtracting the liabilities from the assets.  It further helps the investor to get a deeper understanding of the company's financial position.