Face Value Explained: Meaning, Examples and Face Value of Shares

Introduction

In financial markets, certain terms appear repeatedly across shares, bonds, and official documents. One such term is face value. It is commonly seen in share certificates, bond offer documents, and balance sheets, yet it is often misunderstood.

Search queries such as face value, face value meaning, what is face value, or face value of share usually arise when individuals try to understand what this number represents and how it relates to prices seen in the market.

This article explains the concept of face value, how it is defined, where it is used, and how it differs from other commonly referenced values such as market price.

What Is Face Value

Face value refers to the nominal or original value assigned to a financial instrument by its issuer. It is the value that appears on the “face” of the instrument when it is issued.

Face value is:

• Set at the time of issuance

• Mentioned in official documents

• Used for accounting, legal, and regulatory purposes

• It does not change with market demand or supply.

Face Value Meaning in Simple Terms

In simple terms, face value meaning can be understood as:

The base value assigned to a share or bond when it is created, which remains constant unless formally changed.

For example:

• A share may have a face value of ₹10

• A bond may have a face value of ₹1,000 or ₹10,000

This value is different from what the instrument trades at in the market.

Face Value Example Explained

Basic Face Value Example

Consider a company that issues shares with:

Face value: ₹10 per share

If the share later trades at ₹250 on the stock exchange, the face value remains ₹10, even though the market price is ₹250.

Another Face Value Example

A bond issued with:

Face value: ₹10,000

At maturity, the issuer is contractually obligated to repay the face value, regardless of the price at which the bond traded earlier.

These examples show that face value is structural, not market-driven.

Face Value of Shares Explained

What Is Face Value of Share

The face value of a share is the nominal value assigned to each share by the company at the time of incorporation or issue.

It is also referred to as:

• Nominal value

• Par value

In India, common face values of shares include:

• ₹1

• ₹2

• ₹5

• ₹10

Where Face Value of Shares Is Used

Face value of shares is used for:

• Calculating share capital

• Declaring dividends (as a percentage of face value)

• Accounting disclosures

• Corporate actions such as stock splits

Why Companies Assign a Face Value

Companies assign a face value for several reasons:

• To define authorised and paid-up share capital

• To comply with company law requirements

• To standardise accounting records

• To enable corporate actions like splits or consolidation

Face value has legal and accounting relevance, even though it does not represent economic worth.

Face Value in Bonds and Debt Instruments

In bonds and debentures, face value plays a critical structural role.

Face Value in Bonds

The face value of a bond represents:

• The principal amount

• The amount on which interest is calculated

• The amount repayable at maturity

For example:

• A bond with face value ₹10,000 and coupon 8 percent means interest is calculated on ₹10,000.

• Bond prices may trade above or below face value, but repayment is linked to the face value.

Face Value and Corporate Actions

Face value is important in various corporate actions:

Stock Split

When a company splits its shares:

• Face value changes

• Total share capital remains the same

Example:

• Face value ₹10 split into ₹2

• One share becomes five shares

Bonus Issues

Bonus shares are issued based on face value and share capital structure.

These actions change number of shares, not the company’s underlying value.

Does Face Value Affect Returns

Face value does not directly determine returns.

Returns are influenced by:

• Market price movement

• Dividends received

• Interest payments in case of bonds

Two shares with the same face value can have very different market prices and outcomes.

Face value is a reference point, not a performance indicator.

Common Misconceptions About Face Value

Some commonly observed misconceptions include:

• Face value represents the true worth of a share

• Higher face value means higher quality

• Face value predicts future price

• Face value changes with market conditions

In reality, face value is administrative, not evaluative.

How Face Value Is Used in Financial Documents

Face value appears in:

• Balance sheets

• Share certificates

• Bond offer documents

• Corporate filings

It helps regulators, auditors, and investors understand the capital structure of a company.

Conclusion

Face value is a foundational concept in finance that defines the nominal value of shares and bonds at the time of issuance. While it plays an important role in accounting, legal structure, and corporate actions, it does not reflect market price or investment outcomes.

Understanding face value meaning, reviewing face value examples, and knowing how face value of shares differs from market price helps interpret financial information more accurately and avoid common misunderstandings.

Disclaimer

This blog is intended solely for educational and informational purposes. The concepts and examples discussed herein are illustrative and should not be construed as investment advice or personal recommendations. BondScanner does not provide personalized investment advice through this content.

Readers are advised to independently evaluate financial information and seek professional guidance before making financial decisions. Investments in securities are subject to market risks, including the possible loss of principal.