Question

What is par value? Does it have anything to do with the market value of the stock?

Answer 1

• The par value of any stock is the face value of that stock that has been stated when capital stock of a corporation gets authorised.
• Companies issue stock at Par Value or Above Par Value.
• For example:

XYZ Inc gets incorporated on 1 Jan 2017, with an authorised capital stock of 100,000 common stock shares of $10 par Value.

On 12 Jan 2017, XYZ issued 5,000 of the said stock at $50 per share.

Here, $ 10 is the Par value, and $50 is the Issue Price of the share.

Cash received from the issue of these shares of $ 250,000 [5000 shares x $50] gets debited,
Common Stock gets credited by $ 50,000 [ 5000 shares x $10 par value]
additional Paid in capital gets credited by $ 200,000 [the difference amount, or 5000 shares x $40]

• Generally, Par Value has nothing to do with the market value of the stock directly.

A stock may have a par value of $ 10 per share but might be trading at $60 in stock market (which is the market value).

Stockholders that have subscribed shares at par Value get benefitted when they sell their stock at the increased market value of the stock.