What is Face Value of Shares?

What is Face Value of Shares?

Understanding a Share’s Face Value: One of the most difficult aspects of getting started in the investment world is dealing with different jargon. In this post, we clarify a widespread misunderstanding about Face Value as well as other related topics.

In simple words, the Face Worth of a share is the price of a share on paper, or the original purchase of the share. The nominal and nominal value of shares is the same as the face value of the stock. When it comes to stocks, the face value of a share is stated on the share/bond certificate that is issued. You could see the face share price in Demat Account if you already own them or know someone doing it.

For instance, Within Indian stock markets, most shares have a face value of INR 10. Here is ITC Ltd’s face value, market index, & critical value.

The notional value of a stock determined by the corporation before the Initial Public Offering (IPO) is referred to as face value. It is the stated value of each share on the share certificate. It’s worth noting that today’s share certificates are digitally issued; the days of actual share certificates were long gone.

The face value may range from Rs 1 to Rs 2 to Rs 5 to Rs 10 or whatever the corporation deems acceptable. However, for determining the face value of shares, the Securities Exchange Board of India (SEBI) has set Re 1 as the minimal criterion.

Face value is calculated utilizing two key elements of a company’s market journey: share capital as well as the number of outstanding shares.

Who decides what the Face Value is?

Reliance’s shares have a face value worth Rs. 10, while ITC’s shares have quite a face amount of Rs. 1. When we check at the global marketplaces, we can see that Apple does have a face value of around $0.00001. So, who determines this number, and how did we get at this figure?

When a firm is offered on a securities exchange through such an Initial Public Offering, these values are set randomly by the company. The valuation, on the other hand, may have an impact on the market volatility of such shares after the IPO. Let’s say two companies, ABC Ltd. & XYZ Ltd, decide to go public to raise Rs. 100,000. ABC Ltd establishes a share price of Rs. 10 & XYZ establishes a share price of Rs. 1. This means that following the IPO, ABC Ltd. can have 10,000 shares offered in the industry, while XYZ Ltd. would have 100,000. This indicates there are more genuine XYZ Ltd. shares available for purchase.

Face Value vs. Market Value

Another essential distinction to keep in mind is the distinction between such a share’s face value and its market value. These two are unrelated and do not affect one another except in rare cases.

Let’s use the three companies stated before as an example once again. Reliance, ITC, & Apple have respective market values of Rs. 2005.35, Rs. 213.25, and $127.90. These numbers differ significantly from the ones we saw earlier.

Overall Market Value is determined by the factors of buyers and sellers for a specific market share. If there is a bigger demand oversupply, the market value will rise, and vice versa, the price would drop.

The above-mentioned stocks have such a high market rate since they are in high demand as long as it continues to grow and provide significant returns. Their market value could plummet if the company’s performance deteriorates, lowering demand for the stock. The face value for the stock will be unaffected by demand and supply considerations.

The significance of the face value

As a potential investor, you may be questioning why the face value seems essential if it is not the amount at which you would finally buy or sell the shares. Internal accountancy for the company’s stock uses the Face Value. The total equity capital can be calculated by finding the face value utilized in the balance sheet.

Furthermore, face-value plays a significant role in corporate decision-making. Dividends, reverse stock splits, stock splits, as well as other business activities are examples. In the case of dividends, the face value establishes a benchmark for calculating return rates but rather yield. Stock splits, on the other hand, are one of the few times when the face value and market price of a stock are both changed.