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Difference Between Face Value, Market Value & Book Value


Posted on 2019-09-08 in KNOWLEDGE PORTAL

Investments in the Indian share market can give attractive returns. One can earn big even in the shortest possible time when the right shares are picked. But when you start investing in shares, you will get to hear three values of a share: Face Value, Book Value, and Market Value. This is what confuses the investors. Therefore, it's important to know what they are and the difference between them.

 

Face Value

 

Face Value is the original value of a share listed in the share certificate. It is decided by the company when it offers shares for issuance. It doesn't change unless the company decides to split the shares.

 

How it is calculated:

 

Let's say an ABC company has raised 1 crore equity share capital for business. It decides the Face Value of each share as 10 rupees, and issues 10 lakhs shares.

 

To calculate Face Value, we need Equity Share Capital and No. of Shares.

 

Face Value = Equity Share Capital / Nos. of Shares

 

10000000 / 1000000 =  10

 

You don't have to bother about it when investing in shares since it's just the equity share capital per share.

 

 

 

Book Value

 

It is the net value of the company listed in its books. The means, if the company gets liquidated, the shareholders are liable to receive the amount invested in shares as per the book value.

 

How it is calculated:

 

The formula to calculate Book Value is:

 

Book Value (Tangible Assets) – Liabilities / No. of Outstanding Shares.

 

(Note: Tangible Assets include fixed and current assets such as the land, building, plant and machinery, and real estate cost. Liabilities include normal and current liabilities).

 

Let's say the company has an equity capital of 20 crores and liabilities of 5 crores. Its outstanding shares are 10 lakhs. In that case:

 

200000000 – 50000000 / 1000000 = 150

 

So 150 rupees will the book value per share.

 

Market Value

 

It is the value at which shares are traded on the listed stock exchange. It is the price at which stocks are traded. It reflects the company's worth and is calculated using this formula:

 

Market Value = Current Market Price of per share x No. of Outstanding Shares

 

Let's say the current market price of ABC company's share is Rs. 100. And the total number of shares is 20000.

 

MV = 100 x 20000 = 2000000

 

So the market value of the company is 2000000.

 

Whether investors will make profit or loss is decided by the current Market Value of shares.

 

 

 

Difference between Face Value, Market Value, and Book Value

 

 

 







Face Value







Market Value







Book Value







Difference







It is not calculated and is decided by the company at the time of offering shares for issuance. It is decided based on the equity capital the company wants to raise.







It is calculated by multiplying the number of shares with the current market price of a share.







It is calculated by subtracting liabilities from tangible assets and dividing by the total number of shares issued.







Calculation







It is not volatile as the share's price and remains fixed. However, if the company decides to increase the number of shares for issue, then it can change.







It changes constantly depending on the market situations.







It changes, but not as frequently as the market value.







Change

 

So to conclude, Face Value of is the original value of shares listed in the books of the company. It is mostly used for bookkeeping purpose and shouldn't be considered important for share investing. Book Value shows the value of the company's assets, in case the company gets liquidated. Market Value is the current value of share available for trading, and which forms a metric to determine the profit or loss from share trading.

 







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