Investment in shares is not only about getting good return automatically. It requires a good in depth study and analysis of various company projects and financial statement. These studies helps in drill down about the company working capacity. It is important to know few accounting terminology as well to learn the valuation of asset and understanding financial statemsnt. Face value, Book Value and Market Value plays pivotal role in understanding financial statement. It is important from.jnvesror prospective to understand the basic difference between these 3 similar look accounting terms.
Face Value
In stocks market, the face value is the original cost of the stock. Face value refers to the nominal or par value of a financial instrument, such as a bond or a stock. To better understand we need to go to Mathematics basic. If 457 is a number, then the face value of 5 is 5 only, whereas its place value is 50. Similarly if we have an financial instrument like shares or bonds worth $10000 of Face Value. The said instrument will get mature and redeemed at the same amount. Face value remains constant throughout the life of the instrument and is used primarily for accounting purposes.
Book Value
When we halk about Book value, we are talking about the Net Asset Value (NAV). It determines the actial value of a company after considering the assets and liabilities. For instance, if the company has asset worth of $ 10000 and at the same time the company has a debt of $ 2000 then the book value of the company would come to be $ 8000. In other words it can be termed as the value of a business according to its books or accounts, as reflected on its financial statements. So it alows the probable investors to understand the business position and decide upon investing or not. The book value keeps on fluctuating with the addition of new assets or debts in their day to day working.
Market Value
I think this is one of the most familiar terms of all three. Every investors have comes.across with it while buying and selling their investment. Market value is actually the current price at which a financial instrument or asset can be bought or sold in the open market. Market value is dynamic in naturr and can fluctuate significantly over time. Various factors influence it, including supply and demand, investor sentiment, economic conditions, and company performance.
Singnificance
The 3 terms were crucial at different juncture for different purposes. While, Face Value is crucial in determining the maturity amount of a financial instrument. Book Value is precious for investors looking to understand a company’s financial profile. And Market Value is the real time indicator of an instruments worth. Investors use market value to make decisions about buying or selling assets. Generally, buying at less and selling at high.
So better going deep inside the vast ocean of share market knowing few terminology helps in self understand of the Financials rather than depending upon others. Hope the explanation helps a bit in bringing Clarity of the 3 terms.
