What is Face Value?

Face value is the nominal value assigned to a share by the company and is different from its market price.

• Face value is generally fixed unless it changes because of a corporate action such as a stock split.
• Market value changes according to demand, supply, company performance, and market conditions.
• Dividends may be declared as a percentage of the face value.
• In a stock split, the face value per share decreases according to the split ratio.
• Face value is also used in accounting and while structuring the issue of shares.
• For bonds, face value represents the principal amount payable at maturity.
   

The face value of a share is the nominal value assigned to it by the company. It is also known as the par value of the share.
Face value is different from the price at which a share trades in the stock market. The market price can move up or down depending on demand, supply, company performance, and overall market conditions.
Face value also does not necessarily represent the price investors paid when the shares were originally issued. A company can issue shares at a price higher than their face value, with the difference treated as a share premium.
 

Face value provides a fixed reference value for a company's shares. It is mainly relevant for accounting, share capital, dividend calculations, and certain corporate actions.
For example, dividends may be announced as a percentage of the face value. If a share has a face value of ₹10 and the company declares a dividend of 20% of face value, the dividend is ₹2 per share.
A stock split can change the face value of a share. For example, if a ₹10 face-value share is split into two shares, each new share may have a face value of ₹5. The number of shares increases proportionately.
Face value also applies to bonds. For a bond, it generally represents the principal amount that is payable to the bondholder at maturity. Interest may also be calculated with reference to this value.
 

The face value of a share is important for companies and investors because it is used in accounting, dividend calculations, share capital, and corporate actions.

1. Bookkeeping and accounting

Face value helps companies record their equity share capital. The face value multiplied by the relevant number of shares forms the basis for calculating equity share capital.

2. Legal and regulatory compliance

Face value is used in company records, financial statements, and documents related to the issue or alteration of share capital.

3. Investor information

Face value can help you understand a company's share capital structure. However, it should not be treated as an indication of what the share is currently worth in the market.

4. Dividend calculations

Companies may express dividends as a percentage of the face value of shares.
For example, if a ₹10 face-value share carries a dividend of 30% of face value, the dividend is ₹3 per share. Companies may also announce dividends directly as an amount per share.

5. Corporate actions

Face value can change during certain corporate actions, particularly stock splits or share consolidations. A stock split reduces the face value per share in proportion to the split ratio.
 

The basic formula is:
Face value = Equity share capital ÷ Number of shares represented by the equity share capital
For example, if a company's equity share capital is ₹10 lakh and it is divided into 1 lakh equity shares, the face value would be ₹10 per share.
 

Suppose company XYZ issues a bond with a face value of ₹100. If the bond carries an annual interest rate of 10%, the interest would be ₹10 a year based on its face value.
When the bond reaches maturity, the principal amount of ₹100 is payable according to its terms.
However, the bond's market price can be different from ₹100 during its life. It may rise or fall depending on factors such as interest rates, remaining maturity, and the issuer's creditworthiness.
 

Here is how face value is relevant to IPOs and dividend payments:
IPOs: Face value is the nominal value assigned to a company's shares. During an Initial Public Offering (IPO), the issue price may be higher than the face value. The amount above face value is treated as share premium.
For example, if a share with a face value of ₹10 is issued at ₹100, ₹10 represents the face value and ₹90 represents the premium.
Dividends: Dividends are distributions that companies may make to shareholders from their profits. A dividend may be expressed as a percentage of the share's face value.
 

No. The face value of a share does not show the price at which you can buy or sell it in the stock market.
Shares are traded according to their market price. Market price changes with factors such as demand, supply, company performance, and market conditions.
Face value is mainly a nominal and accounting value. It should also not be confused with intrinsic value, which refers to an estimate of what an investor believes an asset is fundamentally worth.
 

Here is what happens to face value when a company carries out a stock split:

1. Definition

A stock split divides existing shares into a larger number of shares. The face value of each share falls proportionately.

2. Purpose

Companies may use stock splits to reduce the price represented by each individual share and increase the number of shares available for trading.

Immediately after the split, the change in the number of shares and the corresponding adjustment in price do not by themselves create additional shareholder wealth.

3. Example

Suppose a share with a face value of ₹10 undergoes a 2-for-1 stock split.

One share with a face value of ₹10 becomes two shares with a face value of ₹5 each. The total face value of the holding remains ₹10.

Owning shares in a company can give shareholders certain rights, including:

• Voting rights: Shareholders may participate in eligible corporate decisions through voting.

• Dividend rights: Shareholders may receive dividends if the company declares them.

  
  

Face value can be used to calculate a dividend when the dividend is expressed as a percentage of face value.

For example, a 10% dividend on a share with a face value of ₹10 equals ₹1 per share. This calculation is based on the face value, not the share's market price.

Voting power, on the other hand, generally depends on the number and class of shares held rather than changes in their market price.

The face value of share calculation can help you determine the dividend per share when a company declares its dividend as a percentage of face value.

For example, if a company announces a 50% dividend on a share with a face value of ₹10, the dividend is ₹5 per share.

1. Dividend declaration

• A dividend may be expressed as a percentage of the face value.
• Face value provides the reference amount for calculating the dividend per share.

2. Consistency in dividend calculations

• Because face value usually remains fixed unless changed through a corporate action, it provides a consistent base for percentage-based dividend calculations.

3. Investor income expectations

• You can use the dividend rate and face value to estimate the dividend amount when the dividend is announced as a percentage of face value.

• Your total dividend will also depend on the number of eligible shares you hold.

  
  
  

Face value does not directly determine the market price of a share. It is mainly relevant to a company's accounting, share capital, dividend calculations, and certain corporate actions.
For investors, understanding face value can help when interpreting percentage-based dividend announcements and events such as stock splits.
For example, if the face value changes from ₹10 to ₹2 after a stock split, you need to consider the corresponding increase in the number of shares rather than assuming that the value of the investment has fallen simply because the face value is lower.
 

Face value can help you understand dividend calculations and the impact of corporate actions such as stock splits.
For example, if a company declares a dividend as a percentage of face value, knowing the face value allows you to calculate the dividend per share.
However, face value alone does not tell you whether a share is expensive, cheap, overvalued, or undervalued. Investment decisions generally require looking beyond the nominal value of the share.
 

A bond's face value is the principal amount stated for the bond and is generally the amount payable at maturity according to its terms.
Its market price can be higher or lower than its face value. The market price may change because of interest rates, the time remaining until maturity, and the issuer's creditworthiness.
For example, when market interest rates rise, the prices of existing fixed-rate bonds generally tend to fall. As a result, a bond may trade below its face value in the secondary market.
 

Face value is the nominal value assigned to a share by a company and is mainly used for accounting, dividend calculations, and certain corporate actions. It is different from market value, which changes based on demand, supply, company performance, and market conditions. Understanding face value can help you calculate percentage-based dividends and understand events such as stock splits. However, face value alone does not show whether a share is fairly valued or what price it may trade at in the market.