What Is Face Value in IPO?

Published on October 14, 2022 | 5 min read

Key Takeaways:

Face value in an IPO is also referred to as par value or nominal value. It is the nominal value assigned to a share and stated on the share certificate.
A share's face value remains constant unless the company takes a corporate action, such as a stock split. It is set at issuance and helps to determine the company’s authorised share capital.
The face value provides the nominal value; market value reflects current investor sentiment, and book value indicates the accounting value of the company’s assets.

When a company decides to launch an IPO, it files a DRHP with SEBI. The IPO documents disclose financial details such as the issue price, face value, lot size, price band, and more.

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Among these numbers, the term “face value” often confuses IPO investors. This article explains what face value in an IPO means, its importance, how it is calculated, and how it differs from market value and book value.

What is a Face Value in an IPO?

Face value in an IPO refers to the nominal value assigned to each share by the company. It is the value recorded for each share in the company’s books and represents a portion of its share capital.

Face value is also known as the par value or nominal value of a share. When the company launches an IPO, it specifies the face value of its shares in the offer documents. In India, common face values include ₹1, ₹2, ₹5, and ₹10 per share.

Example:

If a company issues shares with a face value of ₹10 and offers them to investors at ₹150 per share. The face value remains ₹10. The additional ₹140 represents the premium charged over the face value.

Therefore, the face value and the IPO issue price are different. The face value represents the nominal share value, whereas the issue price is the amount investors pay to purchase shares during the IPO.

Importance of Face Value in an IPO

Face value plays an important role in understanding a company’s share capital, corporate actions, and financial structure. The following points explain its importance:

Determines Share Capital:

Face value helps determine the nominal value of a company’s share capital by multiplying it by the number of issued shares.

Helps Understand Share Premium:

Comparing face value with the IPO issue price helps investors identify the premium at which shares are offered.

Dividend Calculation:

When dividends are declared as a percentage of face value, investors can calculate the dividend amount per share.

Supports Stock Splits:

Face value helps determine the revised nominal value and the number of shares when a company announces stock splits.

Assist Financial Analysis:

Face value provides information about a company’s share capital structure, although it does not indicate profitability or the company's future growth.

How is Face Value Calculated in an IPO?

A company determines the face value of its share when it establishes its share capital structure. The company specifies it in its constitutional documents and reflects it in its financial records.

It is not calculated using the IPO market demand or valuation. The relationship between face value and paid-up capital can be expressed as follows.

Face Value per share = Paid-Up Share Capital / Number of Outstanding Shares

The company sets the value based on factors such as its consolidation plans, industry norms, and strategic considerations.

Once established, the face value of shares remains constant unless the company undertakes corporate actions like stock splits or consolidations. In a stock split, the face value per share decreases proportionately, while the number of shares increases.

Difference Between Face Value, Market Value and Book Value

Here are the differences between face value, market value, and book value in a tabular format.

Basis	Face Value	Market Value	Book Value
Meaning	Nominal value assigned to a share.	Current price at which a share trades	Accounting value attributable to each share
Determination	Established by the company	Determined by market demand and supply	Calculated using shareholders’ equity
Changes	Changes through actions such as stock splits	Changes with market conditions	Changes with assets, liabilities, and earnings
Purpose	Records share capital	Reflects the market’s valuation	Indicates accounting net worth per share

Face value in an IPO is the nominal value assigned to a company’s share and forms part of its share capital structure. It helps investors understand the share premium, dividend calculations, and corporate actions.

However, face value does not reflect a share's market value or determine whether an IPO is attractively priced. Investors should also examine the issue price, company valuation, financial performance, growth prospects, and associated risks before making an investment decision.

FAQs

What is the face value of an IPO?

The face value of an IPO is the par value or nominal value of the share. It is the original, fixed cost of a single share assigned by the company when it is first incorporated.

Can the face value of a share change?

Yes, the face value of a share can be changed only through corporate actions like stock splits.

Does a higher face value mean a better company?

No, face value is just a nominal figure and doesn’t reflect the company’s market value, growth prospects, and investor demand.

Why is the issue price higher than the face value?

The issue price is higher than the face value because it includes a premium, which reflects the company's market value, growth prospects, and investor demand.

How does face value affect my IPO application?

Face value doesn’t directly affect your IPO application, but it influences the issue price and the number of shares you can apply for in a lot.

About Author

Subhasish Mandal

Sub-Editor

A finance professional with strong expertise in stock market and personal finance writing, he excels at breaking down complex financial concepts into simple, actionable insights. Holding a Master’s degree in Commerce, he combines academic depth with practical knowledge of technical analysis and derivatives.