How Face Value Is Calculated In Stock?

The Face Value of a share is a concept that can sound strange to you. What we see regularly in the stock exchange is the market value of a particular share. Face value is quite different from the market value of a stock.

Face Value is the original value of the share that is assigned by the company while issuing it. Interestingly, the face value does not change with the stock price.

Let’s take an example. Imagine you have a sticker collection, and the price written on each sticker is ₹10. This ₹10 is the face value. Now, if you take these stickers to the market and decide to sell them because they are cool and rare, people are ready to buy them at ₹50 per sticker. This ₹50 is the market value (what people are ready to pay) of these stickers.

But no matter the price people are willing to pay, the face value remains intact at ₹10.

How Face Value is Calculated

Calculating the face value of a stock is simple and does not require any complex formula. The company predetermines it at the time of issuing shares.

However, it can be calculated using:

Face Value = Equity Share Capital/Total Number of Outstanding Shares

Let’s understand with the help of an example:

Let’s suppose a company has:

₹10,00,000 in total equity share capital

& 1,00,000 equity shares are issued

Then,

Face Value = 10,00,000/1,00,000 = ₹10 per share 

Key Things to Know About Face Value

• It is decided by the company, usually ₹1, ₹2, ₹5 or ₹10 in India
• It remains constant unless there’s a stock split
• It is used to calculate the dividends, EPS (Earnings per Share), and stock splits.
• It is not related to market price or fair value of the share.

Uses of Face Value

Calculation of Dividend: Companies often declare dividends as a percentage of the face value, not the market price of the share.

Stock Spilts and Bonus Issues: Face value is adjusted during a stock split or bonus share issue. For example, a stock split reduces the face value (let’s say from ₹10 to ₹5) while increasing the total number of shares.

Calculating Share Capital: Total Equity share capital is calculated using face values.

Share Capital = Face Value * Number of shares issued

Regulatory Filings and Accounting: In financial statements, face value helps break down capital structure and is required at the time of statutory filings.

Understand Pricing: In IPOs and FPOs, the issue price includes a premium in addition to the face value.

Dividend Yield Comparison: Knowing the face value helps calculate the dividend yield, especially in cases where the dividends are declared as a percentage of the face value.

How is Face Value Different from Market Value

Feature	Face Value	Market Value
Definition	The original value of the share set by the company at the time of issuance.	Current trading price of the stock.
Decided By	The company	Demand and Supply in the stock market
Fluctuations	None. It remains constant	It keeps on fluctuating
Used For	Calculating share capital, dividend yields, and stock split	Buying/selling shares for trading or investing
Example	₹1, ₹2, ₹5 or ₹10	₹756 as per the LTP (Last Traded Price) on the stock exchange.

Final Thoughts

Face value has its significance when trying to understand the value of a share. Although it might not play a big role when analysing the fundamentals of a company before investing. 

However, it is still helpful in evaluating the pricing of IPOs and FPOs. It also helps you understand bonus share issues and stock splits.

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