Confused with several terms
These are some terms often used in Accounting and Finance. Many really understand the difference or simply get confused between the jargons. So, this is a little article trying to uncomplicated and give you a better understanding of the terms.
Face Value/ Nominal Value/ Par Value
Face value is the price of the security at the time of its Issue. It doesn’t change over the time. And guess what? Nominal Value and Par Value are just another name for it
Market Value
It is the price listed in the exchange or the price at which it is traded in Market
Book Value
It is the price calculated by the company and recorded in their books. They deduct all debt and arrive at a price or value. For shares it is calculated as: (Total Shareholders’ Equity – Preference Shares)/Number of Outstanding Shares
In terms of Assets, Book value is what investors look at to know how much a company is worth if it ceased its operation today. All the tangible assets – Debt gives you Book Value. More the value better the position of the company.
Fair Value
It is rightly valuing or estimating the price of an asset or share or services. It is used by the investors to get a clear picture of prices which may otherwise be overpriced or under-priced by the market. A company calculates its fair value annually and in case of takeovers or mergers shares/assets are bought at the fair value. It is individually calculated based on various factors such as demand-supply, risk factors, returns, actual utility, etc
Bond fair value is formula based to calculate the present value of future cashflows.
Real Value
Real value is when the price is corrected for the inflation rate.
I hope this article helped you.
-D.V.P
FinancialDoodle 