Calculate the difference between the face value and the actual value of the shares


The par value, or book value, of a share is generally attributed when the share is issued. Also called face value or face value, the face value of the share is its redemption price and is normally indicated on the face of that security. This is the declared value of the security, as opposed to the market value of the security. The market value of a security reflects what the market is willing to pay for it.

Economists examine the difference between nominal values, or the unadjusted rate or current price, which does not include inflation or other factors, compared to real values, in which adjustments are made for inflation and other general changes in the price level over time.

These two values, nominal and actual, can differ dramatically due to different market conditions, as well as supply and demand. As soon as the share is issued, the market begins to trade shares with new investors and the price often fluctuates wildly. It is important for investors to understand the price difference and to consider that difference from their valuations on the stock in question.

Key points to remember

  • The face price of a security is its declared value, its redemption price or its unadjusted price, without taking into account inflation and other factors.
  • The true value of a security is its market value or an adjusted price that takes into account price level changes that have occurred over time.
  • To determine the difference between the two numbers, simply subtract the smaller number from the larger number.

Nominal values

Nominal values ​​can be arbitrarily assigned to ordinary shares and recorded on the company’s balance sheet. These funds are invested directly in the company that issued the shares in order to inject money into the company. The stock represents the ownership of part of the business. Preferred shares can have a specific face value that also reflects an amount the company owes the shareholder at a later date. Common stocks may be more likely to lose value compared to preferred stocks and may have a larger spread between face value and market value.

With the impact of inflation or deflation, face value may have little to do with actual value when stocks are sold. These economic forces can impact stocks differently than the actual assets of the company, so even if balance sheet values ​​change, the market value of stocks can be significantly different.

The face value of common shares will generally be much lower than its market value due to supply and demand factors; the face value of the preferred stock is generally more consistent with its market value.

Calculating the difference

To calculate the difference between nominal and actual values, simply subtract the lower value from the higher value. The nominal value may be listed on the share or obtained from publicly available data. Current market values ​​are available from stock exchanges and a wide variety of online sources.

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