Meaning of the Face Value (or Par Value) of a Share

There’s a significant bunch of terminologies or jargon you need to get familiar with if you want to understand the stock market. You may get overwhelmed with this jargon when you frequently come across them without understanding the meaning. As you know, our mission is not only to make you #RiseMoneyWise but also you to be #WiseMoneyWise. So, here we are with the explanation of a stock market jargon you need to understand – Face Value of a Share.

What is a Face Value of a Share?

Face value is not a very complex concept, if you remember your mathematics class from primary school. The value shown on the front of something is its face value. We read about the face value of bank notes and coins in school… remember?

Similarly, the face value of a share is the value printed on the share certificate issued by the company. The face value of a share is also called the par value of the share.

Is the Share Allotment Price Same as the Face Value?

If you have not seen your share certificate, you might wonder if the price at which you were allotted your share during IPO represents its face value. No, it does not!

The face value of a share is fixed by the issuing authorities and they are generally very low as compared to the price on which you get the shares. The allotment or the issue price is the price that consists of the face value of a share and the premium amount asked by the issuing company.

Issue price = Face value + Premium

Note: Premium is charged by companies to cover their expenses of issuing equity like the underwriters’ fee and a few other tasks allowed by the law — for example, issuing bonus shares to shareholders. Premium on Shares is a non-distributable statutory reserve account i.e. the amount cannot be treated as profit or gain for the company.

How Do I Calculate Face Value of My Stocks?

You might want to know the formula for calculating the face value of the shares. But, there are no formulae for the same as face value is something that is ‘fixed’.

If you got a share through Initial Public Offering (IPO), your allotment or share certificate will tell you the face value or the par value of the share you received. If you bought your shares in the secondary market, you will be informed about the face value of your shares at the time of the announcement of the dividend as dividends are always paid on the face value of a share.

However, if you are interested in knowing (and not calculating) the face value of the shares you hold, you might try searching Google.

But, you should know there’s no relation between the face value of a share and the price at which you get the share. The market value of a share is determined by the demand and supply of the share in the market.

For example, the face value of a share of Apple Inc. is $0.00001 which is hugely different from the market value at which the share is traded.