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What is Face value
What is Face value and how it is difference from Market Value?
Face Value of a share is the value which is decided by the company issuing it, at the time of initial offering .It is mentioned on the face of share, Bond certificate or other financial instrument. Face value has nothing to do with market value of the share. Market value of shares changes depending on several conditions. Face value changes only when splitting takes place.
It is also known as the par value. From this comes terms such as at par, over par and under par. By deciding a face value company promises not to issue any share below this face value or par value. Capital is the factor that decides face value of a share. Capital of any company is its total assets minus current liabilities.
Suppose there is company ABC Ltd having assets of Rs. 1400 crore and liability of Rs. 400 crore
Capital for this company = 1400 - 400 = 1000 Crore
If company decides Rs. 10 as face value of its shares then there will be 100 crore shares of company ABC in the market. Market value of ABC's share may be lower than 10 or higher than Rs.10 depending upon the performance of company and several other factors.
If company ABC wants to have five times no of share than the current no of shares. Then company has to split its face value to 2 by this company will have 500 crore shares in the market. It is not necessary that share's market value will be exact one fifth of its market value prior to this split. The particular date on which company announces split ratio is known as the record date.
The face value of share has little value compared to face value of bond, which is the amount to be paid on its maturity.
(Posted date - 24 Oct 2010)
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