By definition, face value is actually the value of a stamp, coin or paper money, as imprinted on the stamp, coin, or the paper money itself by the issuing authority. Though the face value generally means the true value of the stamp, coin, or paper money in question, at times, it can be largely symbolic, as is it mostly seen in the case of bullion coins. For instance, a one troy ounce American Gold Eagle bullion coin(31gram)has the value and was sold for about 675 US Dollars at the current market prices (as of July 18, 2007) but yet had a face value of only 50 US Dollar.
For value stocks, face value is determined by the company issuing the stock, at the time of initial offering. The face value of the stock is stated on the certificate or any other financial instrument. Face value do not have anything to do with market value of the stock, as market value of the stock fluctuates as a result of several conditions but there is changes in face value only when there is splitting.
For instance, you decided to start a company with a capital investment of $100,000. To raise this capital, you source help from friends, family members or relatives. As exchange, you issue them stocks, say 100 stock at $1,000each; or 1,000 stocks at $100 each, any which way. The $1,000 or $100 is the stock’s face value
Book value, also called the carrying value, is the value assigned to an asset in accordance its actual worth in the balance sheet. For instance, the book value of an asset is the actual cost of the asset minus any impairment costs, amortization, or depreciation made against the asset. Conventionally, the book value of a company is its total assets less intangible assets and liabilities.
Going back to our example above, let us assume that the company has grown 10 times within a given time period, which worth $1,000,000. The price of the company’s stock will also increase10 times, that is, the book value of a stock having a face value of $100 will now be $1000. Contrarily, assuming there is loss on the part of the company, and the company only worth only $10,000, the book value of the stock having a face value $100 will now be $1o only.
It should be noted that value stocks has low price to book ratio, that is, the current closing price of the stock as a percentage of the latest book value per share is low.