What Are the Terminologies Used in Equity Market?

What Is Face Value?

·       The nominal price of a share is called its face value. The company's equity capital is calculated by multiplying the number of shares issued by its face value. For instance, if a company has issued 2 Lakh shares with a Face Value of Rs. 10, then the company's equity capital would be Rs. 20 Lakh (2 Lakh * 10). Shares may be issued to the investors at face value, a price higher (premium) than the face value, or a price lower (discount) than the face value.

·       The face value of a company’s share does not generally change except the company chooses to split or merge its shares.

·       In such instances, the face value of the company’s shares would decrease (in case of a split) or increase (in case of a merger). For instance, if an investor holds 1 share of Rs. 10 FV and the company decides to split its one share into five, then the new face value of its shares would be Rs. 2, and the investor would hold 5 such shares.

·       The face value of a share is significant for calculating the dividend payable on a share.

·       When dividends are revealed as a percentage, that percentage is considered with regard to the face value.

·       For instance, if a company with a Face value of Rs. 10 declares a 30% dividend, it means a dividend of Rs. 3 per share. On the other hand, if a company with a Face value of Rs. 2 declares a 30 percent dividend, which means the dividend of Rs. 0.60 per share.

What Is Book Value?

·       The book Value of a company is the net worth of the company. To calculate book value per share, the company's net worth is divided by the number of outstanding shares. Book value per share means the hypothetical amount of money each share would get if the company were to wind up.

·       There are chiefly two things on the left-hand side of a balance sheet – share capital and debt.

·       The company's assets are scheduled in the balance sheet at its book value, i.e., depreciation costs less.

·       The realizable value of these assets may be different from the book value and is never known with certainty.

·       If it is supposed that each asset on the balance sheet may be converted into cash at its book value, then after fully honouring the business liabilities, cash equivalent to net worth (equity plus reserves) would be left for shareholders.

·       The ability of the company to meet its liabilities would depend upon the realizable value of its assets.

What Is Market Value?

·       This is the market price of a share. The market value of the entire equity of a company is known as market capitalization and is computed as market price per share multiplied by a total number of outstanding shares.

·        The market value of a share depends upon a host of aspects like the company's expected performance, market sentiments, and liquidity, among others.

What Is Replacement Value?

This refers to the market value of all the assets of a company at any point in time. If a new company were to set up with all the infrastructure/plants that a previously existing company has, then the cost it would have to bear today is called the ‘Replacement Value of the existing firm.

What Is Intrinsic Value?

·       The intrinsic value of an asset is the present value of likely free cash flows from the asset. “It is the reduced value of the cash that can be taken out of a business during its rest of life.

·       The intrinsic value of an equity share is the discounted value of its future remuneration to the investors.

·       Investing in equity is about calculating roughly this essential value and paying a price today to earn the future value.