What is the difference between face value, market value and book value of a stock

When evaluating a stock, you’ll often come across three important terms: face value, market value, and book value. While they might sound similar, they are quite different and help investors understand a stock's worth in different ways. 1. Face Value (Par Value) What it means: Face value is the original price of a stock set by the company when it is issued. This value is fixed and does not change. Why it’s important: Used for accounting and legal purposes. Dividends are often calculated as a percentage of the face value. Helps in corporate events like stock splits or calculating interest on bonds. Key points: It stays the same throughout the stock’s life. Usually a small amount, like ₹1, ₹2, ₹5, or ₹10 in India. Example: If a stock has a face value of ₹10, this is its starting value, and it’s not linked to how much it trades for in the market. 2. Market Value What it means: Market value is the price at which a stock is currently being bought or sold on the stock exchange. This value changes based on supply, demand, and market conditions. Why it’s important: It shows how much investors think the stock is worth. It fluctuates during trading hours based on factors like company performance, industry trends, and overall market sentiment. Key points: Market value is not fixed. It can be higher, lower, or equal to the face and book values. Speculative or high-growth stocks often see big price changes. Example: A stock with a face value of ₹10 might be trading at ₹1,000 in the market because of high demand and investor confidence in the company. 3. Book Value What it means: Book value shows the stock’s real value based on the company’s assets and liabilities. It tells you the value of a company if it were to sell off all its assets and pay its debts. How it’s calculated: Book Value per Share = (Total Assets - Total Liabilities) ÷ Total Shares Outstanding Why it’s important: Helps investors find undervalued stocks. Shows the company’s true worth without market hype. Compares market value to see if a stock is overpriced or underpriced. Key points: Book value changes with the company’s financial performance. A high book value usually means the company has strong fundamentals. Example: If a company has ₹10 crore in assets, ₹5 crore in liabilities, and 10 lakh shares, the book value per share is ₹50. Comparison FeatureFace ValueMarket ValueBook ValueMeaningInitial price of stockCurrent trading priceValue based on company’s assets and liabilitiesSet ByThe companyMarket demandFinancial performanceChanges?NoYes, frequentlyYes, over timeImportanceLegal and accountingShows real-time worthReflects company’s actual strength Face value is the stock’s starting price. Market value is its current price in the stock market. Book value shows the company’s true financial value. These three values together help investors make smarter decisions about buying or selling stocks.
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