The face value of a share refers to the share’s nominal value, or the price at which it was originally sold.
Each share in the capital markets has a face value that is called its original price as mentioned in its certificate. For example let’s take Reliance, assume the face value of their share is INR 100, but the issue price of their share is about INR 125.
The money difference refers to the overall amount of money or the premium charged by the company to potential investors. The formula for determining Issue price is as follows:
Premium price + face value
All of the company’s shares have a similar face value, at INR 10. The premium price is determined by the company as well as other aspects such as growth potential, earnings, and sales.
When the company goes public and declares its dividend, the face value is determined. The concept can be explained in two simple terms:
- Stock Split
For example, say the share value of Reliance Digital is INR 2000 and the face value is INR 10. If the share is divided in half, the face value will be INR 5 and the issue price would be INR 1000.
The dividend and the market price of a business’s shares are linked. For example, if a company has a face value of INR 10 and the market price is INR 500, and it declares a dividend of 50% of the selling price, the dividend will be INR 5.
Face value bears great importance in the share market. Numerous aspects can be calculated using the face value of the shares. These are:
- Interest payments must be calculated.
- Calculate premium
- To determine the market value of stocks
- Calculate returns
An example of the importance of the face value is that if a firm requires roughly 1000 crores to meet its needs, it will need to raise INR 10000000 bonds with a face value of INR 1000 on the stock market.
In that case, the selling price is utilized to calculate things like interest payments. If the corporation decides to pay a 3% interest rate, the annual expense will be around INR 300,000.
Frequently Asked Questions
What is the difference between the face value and market value?
The face value of a company’s shares is the original value, whereas the market value is the issued price presented to the general public after considering numerous factors such as profit, sales, and expenditure.
The certified price stated on the certificate represents the face value of a company’s shares. For all companies, it is around INR 10; T&C can be changed.