Understanding Par Value: Calculating Common Stock Value

Par value equals the book value divided by shares outstanding.

The par value of a share of common stock is its stated face value. The issuer assigns a par value when a stock is originated; it is usually quite low--$0.01 or even $0. The par value is different from the current market price of the stock. In theory, if the market price of a stock fell below the par value, the company could be liable for the difference. The shareholders' equity portion of a company's balance sheet gives information about the par value of common stock.

Step 1

Look through the company's financial statements for the balance sheet. It should have three sections: assets, liabilities and shareholders' equity. Go to the shareholders' equity section of the balance sheet. Sometimes the company uses the term "stockholders' equity," which means the same thing.

Step 2

Identify the line referring to the company's issuance of common stock. It will say something such as "book value of common shares outstanding" or "book value of common shares." This line will also provide the number of shares outstanding and the par value of the common stock, if any.

Step 3

If the par value is not explicitly stated, divide the book value of the common shares outstanding by the number of common shares outstanding. The result is the par value for one share of that company's common stock.

Tip

Par value has little or no meaning in terms of the value of a share of common stock. It holds much more meaning for holders of preferred stock or debt instruments, such as bonds.

Things You'll Need

• Company financial statement

• Calculator