Par value, or face value, is another name. It is the company's share price as listed in books or certificates. When a company issues shares, it determines the face value.
The company assigns a face value to each share in an arbitrarily calculated manner. This value is used for the calculation of the accounting value and can then be used in the balance sheets.
Each company issues shares with a fixed price, also known as the face value or share. Each shareholder is issued a certificate containing information about shares by the company. The share certificate clearly indicates the face value of the shares. The face value of shares in Indian companies is Rs. 10.
The face value of a share is an important component of the calculation of stocks and bonds. It can also be used to calculate interest payments, market values, premiums, and returns. It is important to remember that the face value of a share does not relate to its market price or stock value. It is easy to get confused between these terms. Let us now discuss the main differences between them.
Example: Let's look at an example to understand the importance and face value of shares. Let's say that Company XYZ decides to issue bonds to raise capital or funds.
Company XYZ's main goal is to raise Rs. 5 crore.
Let's assume that the share capital of the company is Rs. 100 and that the company will issue 5,00,000 bonds in order to cover its capital requirements.
If the company decides that it will pay 2% interest, it will have to pay 2% interest for the face value Rs. 100 per year. The annual interest to be paid on the bond is 5,00,000*2%. Rs. 10,000, with Rs.100 as face value.
First-time investors often get confused and don't know the difference between market value and face value. Both are different. The face value of a share is fixed, while the market value is the price that is listed on the stock exchange. This tends to fluctuate and change depending on market conditions.
No matter what the share price is, the company's face worth of share remains the same regardless. Companies have the option to divide the face value of the shares to bring about more volatility. 5, 2, or 1.
We hope that you have a better understanding of the face value shares. It is crucial to trade or invest in the stock exchange without hassle. It will also help you understand the relationship between market value and face value. Do not confuse them.