2.4 Face Value And Market Value

WHAT CAN BE THE DIFFERENCE BETWEEN FACE VALUE & MARKET VALUE?

Now lets us understand what is the face value and the market value of a share. The face value of the share means the real value of the share offered in the primary market. A company may issue shares at below par (below the face value) or on par (at face value) etc. Usually the face value is Rs 10.

Market value means the present trading price in secondary markets like the National Stock Exchange and the Bombay Stock Exchange etc. This price is determined by the market forces. The main difference between these two is that the face value is fixed by the company in the primary market and is not changed at any point of time.

If a company issues shares through IPO with a face value of Rs 10, people who get allotment of the shares pay only Rs 10. If after ten years the company performs very well then there will be more people interested in buying the share of that company at high rates. So the stock prices traded in the market on each of the days is this market price.

For example, the face value of a share of Reliance Industries is Rs 10. But the market value of the share as on December 16, 2008 was Rs 1,360 because it is the value at which the share was traded in the market. Please note the huge difference between the face value and the market value.

What Are Active Shares?

Most shares of leading companies would be active, particularly those whose dealings are sensitive to economic and political events and are therefore subject to sudden price movements. Some market analysts would define active shares as those which are bought and sold at least three times a week. In short, active shares are easy to buy or sell.

Dividend:

It is the periodic payment or distribution of earnings after tax (EAT) which is based on the profits made by the corporation during that quarter. Since shareholders have the ownership of the company they are eligible for profits of the company. Dividends are usually paid in cash or additional stock to the shareholders. Dividend is based on the income of the company, and there may or may not be a regular payment. At present payments received as dividend exempted from income tax.

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