What is the Concept of Face Value in Stock Markets?

If you want to start trading stocks and shares, you must be familiar with the various stock market terminologies. The face value of stocks and bonds is one such primary term. When a publicly traded company issues stock through an Initial Public Offering (IPO), the face value in the stock market is fixed. It simply refers to the price at which you can buy a company’s stock. Similarly, a corporation may collect capital or funds through the issuance of bonds. These, too, are given a face value.

Face value in the share market, also known as par value, refers to the company’s value as recorded in its books and share certificates. When a company chooses to sell shares and bonds, it sets the price. You must open a Demat Account and a Share Trading Account before you can begin trading in the stock market. Remember to choose a reputable stockbroker who can offer benefits such as a free trading account.

Understanding How The Face Value Of Stocks And Bonds Works

A fixed value, also known as face value, is assigned to all shares and bonds issued by corporations. There are no set criteria for determining the face value of a company’s stock. Typically, the corporation assigns it in an arbitrary way. From the standpoint of the corporation, assigning face value in the stock market is critical because it allows the organisation to measure the accounting value of the shares. This number is then included in the company’s balance sheet.

The share/bond certificate explicitly states the face value of the securities and bonds. You only need to look at your Demat Account to find out how much your shares are worth. Before you begin trading stocks, you must first determine the face value of your securities.

In The Stock Market, Face Value Is Extremely Important

Face value is a vital factor to consider when measuring various main aspects of stocks and bonds. Face value will assist with:

– Calculate the market value of your stock.

– Premiums to be calculated.

– Calculate the profits.

– Interest payments to be calculated.

With the aid of an example, you can comprehend the significance of share market face value.  A company can offer 10 Lakhs bonds with a face value of Rs 100 each if it needs to collect Rs 10 Crores from the market to meet its business needs. The company’s fixed face value would assist it in calculating different associated costs, such as interest payments. If the company decides to pay 3% interest on its bonds, the annual dividend expense will be Rs.  30,000.

What Is The Distinction Between Face And Market Value?

If you’re a first-time investor, the distinction between face value and market value can be confusing. Before you start trading stocks, you should understand the difference between face value and market value. The table below can be used as a guide.

Face Value Market Value
Market dynamics have little impact on face value in the share market. Depending on business conditions, it fluctuates. Price fluctuations may occur as a result of changes in macroeconomic factors, government policies, and global events.
The company determines the price. The value at which stocks are bought and sold on stock exchanges. When trading begins, everything will change.
Face value is the stock’s nominal value at the time of issuance. Market value is the actual stock market price as quoted on the stock exchange.
Face value in the stock market is difficult to quantify since the organisation determines it. Market value is determined by dividing the company’s overall market value by the total number of shares issued.

Understanding The Concept Of Book Value

Another term that is closely linked to the face value and market value of securities is book value. This basically refers to the value of the company’s stock on the accounts. The number of issued shares is divided by the company’s net worth, or the difference between its assets and liabilities.

Is It Possible To Adjust The Face Value Of Stocks?

Corporate activities, such as stock splits, may alter the face value of shares. When a company splits the stock, it divides the current shares into smaller units with a lower face value. For example, if a company with a face value of Rs 20 per share announces a 1:1 stock split, it means that one existing stock has been split into two units, each with a face value of Rs 10. A stock split is a strategy for increasing liquidity and realising the true value of a company’s stock.

Wrapping Up

Before beginning your stock market trading trip, it is important to understand the difference between the face and market value of shares and bonds. Always remember to open your stock trading account with a reputable and trustworthy stock broker. Features such as cutting-edge trading platforms and a free trading account will help you have the best trading experience possible.