Terminologies most frequently used in Equity Market.
Face Value of a share:
The nominal price of a share is known as its face value. The equity capital of the company is calculated by multiplying the number of shares issued by its face value. For example, in case a company has issued 1 Lakh shares with Face Value Rs. 10, then the equity capital of the company would be Rs. 10 Lakh (1 Lakh * 10).
Always Remember – the face value of a company’s share does not usually change unless the company decides to split or consolidate its shares. In such cases, the face value of company’s shares would reduce (in case of split) or increase (in case of consolidation). For example, if an investor holds 1 share of Rs. 10 FV and the company decides to split its one share into five, then the new face value of its shares would be Rs. 2 and the investor would hold 5 such shares.
The face value of share is important for calculating the dividend payable on a share. When dividends are mentioned as a percentage, that percentage is reckoned with regard to the face value. For example, if a company with Face value of Rs. 10 declares 30% dividend, it means dividend of Rs. 3 per share. However, if a company with Face value of Rs. 2 declares 30% dividend, it means dividend of Rs. 0.60 per share.
Book Value of a share:
Book Value of a company is the net-worth of the company. To compute book value per share, net-worth of the company is divided by the number of outstanding shares. In simple terms, book value per share means the theoretical amount of money each share would get in case the company was to wind up.
Note that – the realizable value of these assets may be different from book value and is never known with certainty. If it is assumed that each asset on the Balance Sheet may be converted into cash at its book value, then after fully honouring the business liabilities, cash equivalent to net-worth (equity plus reserves) would be left for shareholders. The ability of the company to meet its liabilities would depend upon the realizable value of its assets, which is not certain until liquidation.
Market Value of a share:
This is the market price of a share i.e the price which you get to see. The market value of the entire equity of a company is termed as market capitalisation and is computed as market price per share multiplied by total number of outstanding shares. The market value of a share depends upon lot of factors like the expected performance of the company, market sentiments and liquidity, among others. These are the basics ones which you may get to hear while you read news of these companies.
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