Book value, Face value and Market value of a share
Difference between face value, book value and market value. Let us understand these all terms with an example of a story so that you never face any problem regarding these terms in future. There are three friends A, B and C. They start a new business with the capital of 10 lakhs. In which A contributes the capital of 5 lakhs, B contributes the capital of 3 Lakhs and C contributes the capital of 2 lakhs. They think that they might have faced problems of capital transfer and distribution in the near future if they were required to add another person in the business. So they divided their capital into 1 lakh shares of 10 rs each. So this 10 rs is called face value which is their initial investment. Now they continue the business and next year they earn the profit of 10% in their capital. They want to grow their business so they don't withdraw completely but 50% of their profits. Hence next year their capital becomes 10 lakhs plus 50 thousands profits.They continue doing this for 5