what is face value of share
Face Value is the original or nominal value of a share that a company determines when issuing shares. It is usually written on the share certificate and recorded in the company’s official documents.
In simple terms:
When a company first enters the stock market (through an IPO or Initial Public Offering), it sets a specific initial value for each share. This is the face value.
This value is generally ₹10 or sometimes ₹1, ₹2, or ₹5.
The face value remains fixed, meaning it usually does not change with market fluctuations.
Remember, face value and market value of a share are not the same. Market value depends on demand and supply and keeps changing frequently. It can be much higher or lower than the face value.
When a company declares a dividend, it is often calculated as a percentage of the face value, not the market value.
For example, if a company’s face value is ₹10 and it declares a 10% dividend, shareholders will receive ₹1 per share, even if the market price of the share is ₹100 or more.
In the case of a stock split, the face value can change. For instance, if a share has a face value of ₹10 and the company declares a 1:5 stock split, then the new face value of each share will be ₹2 (₹10 / 5).
How Important is Face Value from an Investor’s Perspective?
From an investor’s perspective, the Face Value of a share is not as important as the Market Value, but it does have certain specific relevance that is good to understand.
Why it’s not as important as Market Value:
Buy/Sell Transactions Are Based on Market Value: When you buy or sell a share, the actual transaction happens at the market price. Face value is a fixed figure recorded in the company’s books and usually has no direct connection with current market demand and supply.
Company Performance: The market value of a share is influenced by factors such as the company’s current earnings, future potential, industry performance, and the overall economy. Face value does not reflect these dynamic elements.
Where Face Value Matters:
Dividend Calculation: Many companies declare dividends as a percentage of the face value. For example, if a share has a face value of ₹10 and the company declares a 20% dividend, the shareholder will receive ₹2 per share (20% of ₹10). In such cases, knowing the face value is essential.
Stock Split: When a company performs a stock split (i.e., divides one share into multiple shares), the face value is reduced accordingly. This affects both the number of shares you hold and the face value per share.
In Summary:
As an investor, market value is the key factor when making investment decisions and evaluating a share’s current worth. However, understanding face value is important for interpreting dividend declarations and understanding the impact of corporate actions like stock splits.
what is face value of share - FAQs
face value 10 is good or bad?
what is good face value of share?
There is no single “good” face value for a share. Face value (like ₹1, ₹10) is just a nominal amount set initially, not reflecting company value or market price. A lower face value might facilitate easier stock splits, potentially increasing liquidity. But investment quality depends on company fundamentals and market price, not face value.
face value of share formula
The primary relationship involving face value is in accounting:
Total Share Capital = Number of Shares Issued × Face Value Per Share
It represents the basic contribution value per share to the company’s capital.
