Session 3

◼ Par Value
◼ Book Value
◼ Market Value
 Par Value
 Par value is a value that is mentioned on the face of
the share certificate.

Par Value/Face Value = Equity Share Capital

Number of common share outstanding

Question: If Bartlett Company’s common equity share capital at the end of 2012
was $191,000 and number of common share outstanding was 76262 then its face
value are …
Par Value/Face Value = $191,000 = $2.50
76,262

 The company decides the face value of any stock

when it goes public via initial public offerings.
2
 Book Value
 Book value is the real worth of the company that is
mentioned in the book of accounts.

Book Value = Total Assets - Total liabilities - Preferred stock

Book value per share = Total Assets - Total liabilities - Preferred stock
Number of common share outstanding
Question: If Bartlett Company’s total assets $3,597,000 total liability $1,643,000
preferred stock $200,000 and total number of common share outstanding are
76,262 at the end of 2012, then its book value and book value per share are ….
Book Value = $3,597,000 - $1,643,000 - $200,000 = $1,754,000
Book value per share = $1,754,000 / 76,262 = $23.00
 It is a value that shareholders will receive if the
company liquidates, its assets and after all the liabilities
are paid back to the creditors of the company. 3
 Market Value
 Market value is the price of the security at which
the security trades in market.

Market value = Number of common * Market Price

share outstanding par share
Question: If Bartlett Company’s common stock at the end of 2012 was selling at
$32.25, and total number of common share outstanding are 76,262 at year-end 2012
was ….
Market value = 76,262 * $ 32.25 = $2,459,450

 Unlike Face value, the market price of a company or

stock fluctuates during the whole trading session.
4
Market Value …
 Market Value > Book Value
 This indicates that the investors are an optimist about the
earnings growth, profitability, expansion, which will increase
the book value of the company i.e. it is overvalued.

 Market Value < Book Value

◦ There are two possibilities
 First, the existing investors are not confident enough that
the company does not deliver the expected earnings growth
or profitability or it has experienced a problem in business.
 Second, the stock does not come in the radar of the market
even it has delivered a robust earning numbers, profitability
i.e. it is undervalued.
5
Income Statement…..
Balance sheet
 Balance sheet …..

The market price per share at the end of 2012 was $32.25. The market price per share at the end of 2011 was $18.06.
Bartlett Company Values
2012 2011

Face Value 2.50 2.49

Book Value 1754000 1620000

Book Value par Share 23.00 21.25

Market Value 2459450 1376967

Market Value par Share 32.25 18.06

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Self test Practices:
 Book: Principles of Managerial Finance, 13th
Edition, By Lawrence J. Gitman and Chad J.
Zutter.

 Warm-Up Exercises: are available on

book page number 93 to 94.

 Problems: are available on book page

number 94 to 112.