Face value of Share refers to the nominal value of the shares that means the original value at which the share is 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 is the total sum of money or the premium that the company charges from its potential investors. The formulae of finding Issue price is
Face value + Premium price
The face value of all the company’s shares is almost the same, i.e. about INR 10. The premium price depends on the company and various other factors like growth potential and profits and sales figures.
The face value is decided by when the company goes to stock and announces its dividend. Two basic terms will clear the concept:
- Stock Split
For example let’s take an assumption of Reliance digital, suppose the share value of the reliance is INR 2000 and face value is INR 10 if the share is divided into two then face value will be INR 5 and the issue price is INR 1000.
The dividend and the market price of shares of companies are terminated with each other, for example, if a company has a face value of INR 10 and the market price is INR 500 announces a dividend of 50% of the selling value, then simply the value of 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:
- To calculate interest payments
- Calculate premium
- To calculate the market value of shares
- Calculate returns
The importance of the face value can be understood by an example: if a company needs about 1000 crores to meet its requirements then they need to raise INR 10000000 bonds with a face value of INR 1000 to the share market.
In that situation, the selling value is used to determine various aspects like interest payments. If the company decided to provide an interest of about 3% then the expenditure will be about INR 300000 annually.
Frequently Asked Questions
What is the difference between the face value and market value?
Face value is the original value of the shares of a company, whereas the market value is the issued price offered to the general public by calculating several aspects like profit, sales, expenditure, etc.
The face value of the shares of a company is the certified price mentioned on the certificate. It is about INR 10 for all companies, can be varied T&C applied.