Definition of Face Value

Face value, also known as nominal value or par value, is the value of the share at the time of the Initial Public Offering or the value before it was shared among the owners of the company. It refers to the original cost of the stock stated on the security certificate and will not change until the issuer splits the stock.

Where Is Face Value Used?

Face value is an important variable in shares calculations such as:

  • Market values of shares
  • Interest payments
  • Discounts
  • Premiums
  • Yields

How Is Face Value Related to Price?

The face value and market price of shares are not related. However, both prices can rise or fall according to the market forces, fluctuations in interest rates and the financial status of the issuing entity.

What Is a Share?

Share refers to equity ownership in a business entity.

What Are the Types of Share Value?

There are two major types of share value including:

  • Market value
  • Face value or par value

What Is the Difference Between a Market Value and a Face Value?

The forces of demand and supply determine market value after IPO and changes daily based on the volume of trading. On the other hand, face value is determined before or at the time of IPO and remains constant unless the issuing company announces a stock split.

What Is Dividend?

Dividend refers to a corporate action which involves the distribution of profits in cash form to the shareholders of a company. Typically, dividends and dividend payouts are announced and calculated on face value.

What Is Stock Split

A stock split is a corporate action performed by companies to increase the value of their stock. It involves dividing the face value of a stock by a whole number.

What Is an Example of a Face Value Computation?

For example, a company wants to raise capital by offering $1,000,000 in shares. If the face value of each share is $50, the company must issue 20,000 shares to raise its capital. Meanwhile, the company will pay a dividend on each share. The dividend will be calculated as a percentage of the face value. Let's assume the company is paying ten percent dividend. This means each share worth $50 at face value will receive a $5 dividend.

How Can I Diversify My Portfolio?

Diversifying your portfolio requires investing in value and growth stocks. If your holdings currently have only one type, try to diversify it. If you are new to the investment market, ensure your portfolio is balanced between value and growth stocks.

Is the Stock Price the Same as the Stock Value?

No, stock price and stock values are distinct terms and the two are determined using different methods.

What Are the Indices for Growth and Value Stocks?

The majority of investment firms such as S & P Dow Jones Indices and Wilshire use indexes which splits the stock market into value and growth stocks. This is achieved by using a variety of factors to rank stocks including sales and profit growth, price-earnings ratios, and others.

What Are the Industries Grouped Under the Value and Growth Stock?

Stocks of technology and healthcare companies are categorized under the growth group while energy and financial stocks tend to be in the value class.

Can Growth Stocks Transition to Value Stocks?

Growth stocks can become value stocks when the issuing company transitions from a growing company into an industry giant. Companies such as Apple, Intel, Cisco Systems, and Gilead Sciences became some of the most valued stocks despite modest forecasts while they were being issued as growth stocks.

Characteristics of Growth Stocks

Growth stocks have the following properties:

  • Strong historic and projected forward growth rate
  • Strong return on equity
  • Higher earnings per share

Are Value Stocks Low in Value?

Value stocks are expensive, but they might not be performing well on the stock market. They are usually found on the list of stocks which have lost value for 52 weeks.

Why Do Some Investors Choose Value Stocks?

Investors consider value stocks as good buys because they are undervalued for various reasons by the market and the investor aims to acquire the stocks before the prices go up.

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