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, let’s 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.
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? Don’t worry! We’ll answer that too.
Face value is decided arbitrarily and is determined by the company management based on the company’s 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.
The face value of a stock can be altered by splitting the shares. The most familiar face value in shares is ₹10, but as and when a share is split, the new price is ₹5, ₹2, or ₹1.
Face Value of Share Meaning with Example
To understand the concept of Face Value Shares in an easier way, we have an example.
Let’s suppose there is a company XYZ that has the stock market value of ₹500. The company was listed one month back with a face value of ₹10.
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 market’s demand to trade the XYZ company’s shares, the market value climbs to a higher number.
What is the Importance of Face Value in Shares?
Imagine you are falling from the top of a mountain, with no safeguards or harness.
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 company’s 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.
Highest Face Value Shares in India
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 company’s 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:
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 ₹59,000, which is 5,900 times its face value shares which is the most expensive share.
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 NSE’s Nifty 50 since April 1, 2016.
The company’s market value is approximately ₹2,100, 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 ₹2,500 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.
It got listed on the NSE and BSE on 29 July 2007. The share price then was ₹600. Today, it is priced at ₹18,400. This amount is 1,840 times the face value shares.
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 ₹3,590 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 ₹32,500, which is 3,250 times the face value shares.
Market Price (approximate)
Tata Consultancy Services
Page Industries Limited
Honeywell Automation India Limited
Face Value in shares is an essential concept for traders who invest high capital amounts in various shares.
Since this is the price you’ll 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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