Understanding Face Value

In simple terms, face value (also called per value or nominal value) is the original cost of a share listed on a company's books. It is the value assigned to a stock when it is issued, and it remains unchanged over time.

For example, if a company issues shares with a face value of ₹10, that amount is recorded as the nominal value of each share. It doesn't depend on the stock’s current market price or its performance.

📘 A Quick Analogy: Face Value vs Market Value

Let’s say you buy a book that has ₹100 printed on the cover—that’s its face value. But if that book becomes rare and people are willing to pay ₹500 for it, then ₹500 is its market value.

In the stock market:

• Face Value is the printed price (say ₹10).
• Market Value is what people are buying or selling it for (say ₹180).

They are totally different, and it’s important not to confuse one for the other.

📈 Why Is Face Value Important?

While face value may not affect the market price directly, it plays an important role in various aspects of finance and accounting. Here’s how:

1. Issuance of Shares

When a company raises capital, it issues shares at a price. That price may be at face value, premium, or discount. For example:

• If face value is ₹10 and shares are sold at ₹120, then ₹10 goes into share capital and ₹110 into securities premium.

2. Dividend Calculations

Dividends are often declared as a percentage of face value. So if a company declares a 50% dividend on a face value of ₹10, it means you’ll get ₹5 per share.

3. Stock Splits and Consolidation

If a company performs a stock split, the face value gets divided. For instance:

• If face value is ₹10 and stock is split in a 1:2 ratio, the new face value becomes ₹5.

🏦 How Face Value Affects Company’s Financial Statements

Face value is recorded under the share capital section of a company’s balance sheet. It helps determine the total capital raised by the company through equity. For example:

• A company issues 1 crore shares with a face value of ₹10.
• Share capital = ₹10 crore (1 crore x ₹10)

This value stays consistent unless there’s a corporate action like a split or consolidation.

🤔 Does Face Value Affect Investors?

Most retail investors focus on the market price, but understanding face value helps you:

• Decode dividend declarations
• Interpret stock splits
• Analyze a company’s equity structure

So while it may not directly impact your trading decisions, it gives you a clearer picture of the stock’s fundamentals.

🧮 Real-Life Example

Let’s say you own 100 shares of a company with:

• Face Value = ₹10
• Market Price = ₹200
• Dividend declared = 100%

This means:

• You’ll receive ₹10 per share (100% of ₹10)
• Total dividend = ₹1,000 (₹10 x 100 shares)

Now imagine a stock split occurs:

• New face value = ₹5
• You now hold 200 shares (100 x 2)
• Market price adjusts (approximately ₹100)

But your total holding value remains roughly the same. It’s just divided differently.

⚖️ Face Value vs Book Value vs Market Value

These terms often get mixed up, so here’s a simple comparison:

Term	What It Means	Example (₹)
Face Value	Nominal value when share is issued	10
Book Value	Net asset value per share	150
Market Value	Price at which share is trading	200

Each has its place in stock analysis, but for dividends and corporate accounting, face value is key.

🚫 Common Misconceptions

“Higher face value = better company”

Not true. Face value is arbitrary. A company with a face value of ₹1 could be stronger than one with ₹10. It’s the market cap, earnings, and performance that count.

“Face value affects stock price”

Not directly. The market price depends on demand, supply, company earnings, news, etc. Face value just stays in the background.

Key Takeaways:-

• It’s the original value of a share when issued.
• Plays a role in dividends, share capital, and corporate actions.
• It’s not the same as market value.
• Important for understanding the company’s structure—not so much for trading decisions.
• Helpful for decoding financial reports and announcements.