What is 'Face value'

Face Value
Any student or investor in stock markets must know many terminologies in accounting or stock markets. One such terminology is face value. Face or nominal value is stated by its issuer. Any stock market investor needs to be aware of the importance of the face or nominal value.


What is Face Value?
Face value is the dollar value as stated by the issuer of any security when issuing. The nominal value is the fundamental concept of the stock market. This value remains fixed when publicly traded firms offer stocks through the IPOs (Initial Public Offerings). This value indicates the price at which you can buy the stocks of any company. Face or nominal value is set up when the company or the firm starts issuing its bonds and shares. In the case of stocks, this value is equal to the original value of the stock as present on the certificate. On the other hand, the claim of bonds is defined as the dollar value to be paid to the investor after the bond gets to its maturity.


However, the actual market value of any bond or stock does not entirely depend upon the face value. Other factors such as supply and demand also affect the market value of any stock or a bond. Selling bonds in the secondary market depends upon the rate of interest. The interest rate and the bond's coupon rate are inversely proportional. This states that an increase in the interest rates than the bond's coupon rate allows the bond to be sold below par. Similarly, a decrease in the interest rates than the bond's coupon rate lets the bond be sold above par, i.e. at the premium.


Importance of Face Value
The face or the nominal value holds a great significance in the stock market and accounting. Some of the importance of it is as follows:

• It helps in the calculation of premium (above par).
• It helps in the determination of the current market value of any stock.
• It helps in the evaluation of the rate of interest.
• It helps in the assessment of profits.

Share Certificates and Bond Certificates
Face value is the defined value issued by companies for their shares and bonds. Several factors affect its value. Share certificates refer to the documents provided by the companies to sell their shares in the market. These certificates (share and bond certificates) consist of the face or nominal value, class of share, and all other information related to the company's share. This clearly shows that assigning a face value to the share on these certificates is extremely important to determine the accounting value of the company's share.


Stating the fundamental Difference between the Face Value and the Market Value

Face Value	Market Value
The nominal value of any stock at its issuing is termed its face value.	The market value of any stock refers to the current market price of that stock as stated on the stock exchange.
This value remains unaffected by the market conditions.	Market conditions (such as government policies) can alter the market value.
To calculate the face value, we need to divide the equity share capital by the number of outstanding shares.	We need to multiply the number of outstanding shares with the current stock price to calculate the market value.

What is the face value definition?
According to the face value definition, it is the dollar value of any stock (or any financial instrument) at the time of issuing. It is also termed the nominal value or the dollar value.


How can we modify the face value of stocks?
The face value of stocks can be modified by some corporate actions, for instance, stock splits. This stock split will lower the value by dividing the current shares into sub-units.


State the fundamental difference between the Face value and the issue price?
Face value, the nominal value stated by any issuer, can be of values like INR 1, INR 20, INR 3000 etc. It is also termed the equity share capital per share. On the other hand, the issue price is equal to the sum of the face value of any claim and the premium on the same share asked by the company.

Face Value= Equity share capital/ number of outstanding shares.

Issue Price= sum of the face value of any share+ premium on the same share asked by the company


Is the principal same as the face value?
Yes, the face value is synonymous with the principal or the par value.


Does the face value of the stock have any relation to the prevailing stock price?
No, the face value does not relate to the prevailing stock price.


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