Understanding Par Value: Calculation & Importance for Stockholders

Companies must sell their stock above par value, or the shareholders could face liability issues.

The par value of stock is a price the company sets on its stock at incorporation. Generally, a corporation must disclose the par value of its stock on its balance sheet. However, if the company does not disclose this amount, it is possible to calculate the par value. In order to calculate par value, you will need to know the amount of common stock outstanding and the balance sheet amount of common stock. Both pieces of information are readily available in the company's financial statements.

Step 1

Find the book value of the common stock on the company's balance sheet. Be careful with the numbers because they are often in terms of thousands of dollars in order to eliminate the use of too many zeros. For example, a company's balance sheet shows common stock valued at $1,000 in thousands of dollars. This is actually, $1,000,000.

Step 2

Find the number of common shares outstanding on the balance sheet. In the example, the company has 500,000 shares outstanding.

Step 3

Divide the book value of the common shares by the number of shares outstanding. In the example, $1,000,000 divided by 500,000 equals $2 per share par value.