Face Value

 Face Value

Definition of Face Value: Face value, also known as par value or nominal value, is the original value of a share as stated in the company's memorandum. In India, it's typically expressed in rupees (₹).

Key points about Face Value in the Indian context:

1. Common Face Values: In India, common face values are ₹1, ₹2, ₹5, ₹10, and sometimes ₹100.
2. Importance in Indian Markets: Unlike some other markets, face value is more significant in Indian stock investing. It's used for various calculations and corporate actions.
3. Corporate Actions:
   • Dividends are often declared as a percentage of face value.
   • Bonus shares and stock splits are determined based on face value.
4. Calculation Example: If a company declares a 50% dividend and the face value is ₹10: Dividend per share = 50% of ₹10 = ₹5

How to look at Face Value while investing in the Indian stock market:

1. Dividend Calculations: Higher face value stocks might pay higher absolute dividends, but this doesn't necessarily mean better yields.
2. Stock Splits: Companies might split stocks to reduce the face value, making shares more affordable and potentially increasing liquidity.
3. Bonus Issues: When a company issues bonus shares, it's often expressed in relation to face value (e.g., 1:1 bonus on ₹10 face value shares).
4. Comparing Stocks: Don't directly compare stock prices of companies with different face values. Use metrics like P/E ratio instead.
5. Rights Issues: The price of rights issues is often set in relation to the face value.
6. Market Lot: In the past, face value affected market lots, but with dematerialization, this is less relevant now.
7. EPS Interpretation: Earnings per Share (EPS) should be viewed in context of the face value.
8. Book Value: Face value is used in calculating book value per share.
9. Regulatory Aspects: Some regulatory requirements in India reference face value.
10. Historical Analysis: Changes in face value over time (due to splits or consolidations) should be considered when analyzing historical data.

Remember:

• A lower face value doesn't necessarily mean the stock is cheaper. Market price is what matters for your investment cost.
• Face value in India is more than just an accounting convention; it's actively used in corporate actions and investor communications.
• Always consider face value alongside other financial metrics for a comprehensive investment analysis.