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Face Value Vs Book Value Vs Market Value!

The document discusses three key terms related to investing in stocks - face value, book value, and market value. It defines each term, provides examples to illustrate them, and compares their characteristics like how they are determined and how they change over time. Understanding these values helps investors make more informed decisions.

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debasis.datta65
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55 views10 pages

Face Value Vs Book Value Vs Market Value!

The document discusses three key terms related to investing in stocks - face value, book value, and market value. It defines each term, provides examples to illustrate them, and compares their characteristics like how they are determined and how they change over time. Understanding these values helps investors make more informed decisions.

Uploaded by

debasis.datta65
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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FACE VALUE

BOOK VALUE
MARKET VALUE
Investing in the stock market involves
understanding various financial terms and
metrics.

Three such important terms are Face Value, Book


Value, and Market Value.

These terms might initially seem complex, but


they are crucial for making informed investment
decisions.
Face Value
Face Value also known as par value is the original
cost of the stock as stated by the issuing
company in the share certificate.

In simple terms, the value at which the company


first issues its shares to the promoter is known
as the face value of the stock of that company

(A share certificate is a written document that serves as legal proof


of ownership of the indicated number of shares.)
Let’s understand with an example
Let’s take a company named XYZ that wants to
raise capital of Rs 1,00,000 for the first time.

To raise the capital, the company issues shares to


its promoter at Rs 100 per share.

Therefore the face value of the stock is Rs 100.

The face value remains constant unless there is a


stock split.
Book Value
Book Value refers to the net asset value of a
company as indicated on its balance sheet.

It is calculated by subtracting the company's


total liabilities from its total assets.

In simple terms, it represents the total value of


the company's assets that shareholders would
receive if the company were liquidated or
bankrupt.

We get book value per share by dividing the


company's total book value by the number of
shares currently outstanding.
Let’s understand with an example
Let’s take the example of the company ABC which
has the following:

Total Assets: Rs. 100,000


Total Liabilities: Rs 40,000
Total No. of shares outstanding: 1000

Book Value = Rs 100,000 (Total Assets) -


Rs 40,000 (Total Liabilities)
= Rs 60,000

∴ Book Value Per Share = 60,000/1000 = 60


Market Value
Market Value is the current price at which a
stock is trading on the stock exchange.

Unlike Face Value, it is highly dynamic and can


fluctuate widely due to market conditions and
demand and supply.

For example, if a company’s stock is currently


trading at ₹800 per share, this is its Market
Value. It reflects the collective perception of the
company’s future prospects and profitability.
The Difference
Face Value Book Value Market Value

Company's Current
Nominal
assets minus trading price
Definition value set by
liabilities per on the stock
issuer.
share. market.

Constant Varies with Fluctuates with


Changes unless altered financial market
by share splits. performance conditions.
.
Set at the time Calculated based Determined by
of issue and on the company's the stock market
Determination
does not financial through supply
change. statements. and demand.

Basis for Reflects actual Indicates what


calculating bond shareholder investors
Purpose interest and value. currently pay for
dividend a stock.
payments
Conclusion
Understanding the face value, book value, and
market value of a stock provides a clearer picture
of what you're investing in.

While face value remains constant, book value


and market value provide deeper insights into a
company’s financial health and market
perception.

As an investor, knowing these values can help


you make more informed decisions and
potentially lead to better investment outcomes.
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Content

Research Credits
Harshal Jamdhade

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