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Face Value Shares
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A significant doubt in the minds of a beginner in the Stock Market is – Face Value Shares. Every trader is guilty of getting confused in the ocean of stock market related technical terms. The face value of shares being no exception.
Before we jump to learning the concept of face value, we need to be clear on what a share is. Thus, letās discuss shares briefly.
Share is the smallest part of ownership that is an indivisible unit of capital invested in the company and defines the relationship between the company and the shareholder.
It is used as mutual funds, real estate investment trusts, and limited partnerships.
These shares are listed on India’s various exchanges like – National Stock Exchange (NSE), Bombay Stock Exchange (BSE), etc.
With this, we can move ahead and understand the face value shares.
For better understanding you can learn stock market investing to invest smartly.
Face Value, popularly known as Par Value, is used for the share price announced when the shares are made available for capitalization by the public.
It is the amount at which the shares got listed on the exchange. It is mentioned on the share certificate and the company books.
The accounting value of the company is finalized by using face value shares in the balance sheet. You must be wondering how a company thinks of answering the question:
What is the face value of shares? Donāt worry! Weāll answer that too.
Face value is decided arbitrarily and is determined by the company management based on the companyās capital requirements.
Generally, the face value in shares is lesser than the market value. The face value of shares is used to calculate the dividends of the investors.Ā
The face value of a stock can be altered by splitting the shares. The most familiar face value in shares is ā¹10, but as and when a share is split, the new price is ā¹5, ā¹2, or ā¹1.
To understand the concept of Face Value Shares in an easier way, we have an example.
Letās suppose there is a company XYZ that has the stock market value of ā¹500. The company was listed one month back with a face value of ā¹10.
The difference in the market value and face value comes from the amount an investor is willing to pay for this share.
The company sets its share price at a lesser amount. Still, because of an increase in the marketās demand to trade the XYZ companyās shares, the market value climbs to a higher number.
Imagine you are falling from the top of a mountain, with no safeguards or harness.
Scaring, right?
The company is also vulnerable to such steep falls. A cushion in the form of face value is placed to safeguard the company and the investor.
This cushion means that the company is obligated to maintain capital reserve corresponding to the number of shares issued and the capital generated.
This reserve saves the investors capital in a scenario of plunging markets.
When a companyās share prices fall, the company will be obligated to pay back only the price equivalent to the face value shares and not the market price.
The face value shares become an essential aspect while investing in a particular share or stock.
With the concept of face value shares clear to you, you must be confused about how a share can have the highest face value. Hold onto that thought!
When a companyās shares are being traded for a high market price compared to the face value shares, the layman calls it a high face value share.
This comparison can also be combined with discussing the Face Value of a share of Indian Companies too.
The top five companies with more than 2000 times their face value are listed below:
- MRF Limited
Mr. K. M. Mammen Mappillai founded it in 1946. MRF started as a company manufacturing balloons, toys, and contraceptives. Over the years, it grew to be a company with the highest stock price.
It is a company that mainly contributes to the tire market and has contributed to setting the foundation for India’s robust tire industry.
Currently, it is priced at approximately ā¹59,000, which is 5,900 times its face value shares which is the most expensive share.
- Eicher Motors
Eicher Motors has a famous brand – Royal Enfield. It is listed on the two significant exchanges of India – NSE & BSE. Further, it has been a great contributor to NSEās Nifty 50 since April 1, 2016.
The companyās market value is approximately ā¹2,100, which is 2,100 times the face value shares.
- Tata Consultancy Services(TCS)
TCS is a part of the well known TATA Group. It is an Indian Multinational IT (Information Technology) Company founded in 1958. It is a well known international IT company and is the second-largest Indian company by market capitalization.
It is currently priced at ā¹2,500 approximately, which is 2,500 times the face value shares.
- Page Industries Limited
The company was founded in 1994 by the Genomal family. This company is a licensed manufacturer, marketer, and distributor for Jockey in India, Bangladesh, UAE, Nepal, and Sri Lanka.Ā
It got listed on the NSE and BSE on 29 July 2007. The share price then was ā¹600. Today, it is priced at ā¹18,400. This amount is 1,840 times the face value shares.
- Britannia Industries
Britannia is a famous food and beverage company in India. It was founded in 1892 and is one of the oldest existing companies in India. This company exports its products worldwide.
It is currently priced at ā¹3,590 approximately, which is 3,590 times its face value shares.
- Honeywell Automation India Limited
Honeywell Automation India Limited is known for its technologically advanced solutions in automation and software solutions. It is a global firm with an international presence.
It is a part of the Fortune India 500 companies and is listed on NSE and BSE. Currently, the company shares are trading at ā¹32,500, which is 3,250 times the face value shares.
| Company | Market Price (approximate) | Face Value | Times |
| MRF Limited | ā¹59,000 | ā¹10 | 5,900 |
| Eicher Motors | ā¹2,100 | ā¹1 | 2,100 |
| Tata Consultancy Services | ā¹2,500 | ā¹1 | 2,500 |
| Page Industries Limited | ā¹18,400 | ā¹10 | 1,840 |
| Britannia Industries | ā¹3,590 | ā¹1 | 3,590 |
| Honeywell Automation India Limited | ā¹32,500 | ā¹10 | 3250 |
Conclusion
Face Value in shares is an essential concept for traders who invest high capital amounts in various shares.
Since this is the price youāll get in a situation where the company faces difficult times, the investor must be aware of this fundamental aspect.
Face Value shares is the amount mentioned on the share certificate. The company reserves this amount for unforeseen times.
We hope the concept is crystal clear to you. For any queries regarding this topic, you can ask us in the comments below.
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