Easy Explanation: PART 1- Face Value, Book Value & Market Value (Stock Market Basics) [Video]

Face Value, Book Value & Market Value -Part 1

Chapters:
00:00 – Introduction
00:20 – What is Face Value?
00:37 – What is Issue Price?
00:52 – What is Premium or share premium?
00:56 – Example relating face value, issue price and premium.
01:38 – Why is Face Value important?
01:42 – What is Dividends?
01:51 – How are Dividends calculated?
02:12 – How stock split impacts face value of stock?
02:32 – Conclusion

In this video tutorial, we will discuss what is Face Value, what is Issue Price, what is Premium or share premium, examples relating face value, issue price and premium, why is Face Value important, what is Dividends, how are Dividends calculated, how stock split impacts face value of stock, etc.

What is face value of a stock? Face value is the original price of the shares issued by the company and is usually listed in the company’s books and share certificate.
The issue price is the price at which the stock gets issued to the public in the secondary markets.

This means the issue price is the price you would have to pay to buy the stock for the first time in the secondary markets.
Generally, issue price = face value + premium.
Example: A company 1 million shares and sets the initial price at, let’s say, $10(face value).
Now the company raises funds through an IPO.
And sets the offering or issuance price of its shares at $100.
So, 100-10= $90 is stock premium.

Why the face value of a stock is important?
Whenever a company issues dividends (which means cash gifts as rewards for its investors), that dividend is rolled out using face value.

Example, a company rewards its investors with a 50% dividend.
So, Dividend=50% of its face value= 50% of $10= $5.
Note: Face value is not affected by market fluctuations. It is always fixed.

However, if a company decides to split its stock, then the face value of the stocks will go down.
Example, A company splits its stock in the ratio of 1:1=1/2 the face value of its stock= $5 (because the number of shares has doubled).
In the next part, we will cover the book value and market value of stocks.
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