What the Par Value of a Stock Means

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Par value, sometimes referred to as face value, is the nominal value assigned to an underlying security. Par value acts very differently depending on whether the underlying security is a debt instrument, such as a bond, or an equity instrument, such as common stock. Par value will play little role in the market price of most common stocks but can be an important component of preferred stocks.

Function

  • Par value is a factor of the legal value of the corporation issuing the common stock. The legal value of the corporation is determined by multiplying the par value by the number of shares of company stock that are outstanding. The par value represents the minimum price the company may pay to buy back its stock from investors. The par value is assigned by the issuing company and is typically quite low--1 cent or less per share.

Features

  • Stocks may be sold at whatever price the market will bear as long as the price is equal to or above the stock's par value. Stock may not be sold below its par value. The par value of stock is assigned by the company when it forms; however, the par value may be altered by the company as the needs of the company change over time, subject to state regulation.

Considerations

  • Not all states require companies to assign a par value to their stocks. Stocks issued without par values are referred to as zero-par value stocks or no-par stocks. The legal value of the companies that issue such stock is determined by the total amount received by the company from the initial sale of company stock.

Identification

  • The par value of a company's stock is typically printed on each stock certificate. A stock certificate of a zero-par stock may include a statement indicating the stock has no par value or it may not have any reference to par value. Investors may determine the par value of a company's stock by contacting the company's investor relations department.

Significance

  • Par value has little significance in determining the market value of common stock. Par value has much more significance when the underlying security is preferred stock that requires the payment of a specific dividend because in these instruments par value value represents the amount the company must repay to the investor at maturity. Par value for preferred stock becomes an important facet in calculating the interest rate on dividend payments, market values and yields.

References

  • Photo Credit stock market analysis screenshot image by .shock from Fotolia.com
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