Definition of Face Value
If you are new to the stock market, you must have seen a number of terminologies that sound overwhelming because you may never have heard about them before. But if you want to find your feet in the stock market it is important that you understand these terminologies and know their meaning.
One such financial term is face value. Face value in general terms means the normal value of a digit or number is the value that defines the number itself. For example- the face value of 7 in 267 is 7. When we talk about face value as a financial term, it means the rupee value of a security as stated by its owner. Face value is of significance in the stock market and if you want to invest in the market you must be aware of the importance of face value in stock markets.
What is the Importance of Face Value in the Stock Market?
Face value of stocks or shares means the price of the stock as listed by the company, which is also the price at which you buy the stock or share. A company can also issue bonds to raise their capitals or funds; these bonds are also issued at a certain face value.
This face value is listed in the company's bond and share certificate. Face value is also called “Par Value” or “Par”. At the time of issuing the bonds and shares, the company fixes this face value.
Face value has its importance in the stock market, it helps to calculate the market value of the stock, calculate the investments and returns and also to calculate premiums.
The face value of stocks may also be subject to change as a result of some corporate actions like the stock splits. In such cases companies usually split the bonds and shares with a lower face value than before.
How is Face Value different from Market Value?
As we discussed above, the face value is the initial price of shares and bonds as listed by their owner. Market value however, is influenced by the variations in the market. Therefore, the market value can differ a great deal from the initial value of the stock. This also means that while face value is fixed by the company and is not affected by market fluctuations, market value is highly affected by the variations in the market.
