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Lane
Lane, JD, CFP, MBA, CRPS
Category: Finance
Satisfied Customers: 9183
Experience:  Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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What is the value of the stock when each shareholder owns 1.5

Resolved Question:

What is the value of the stock when each shareholder owns 1.5 mil? How much is the capital stock worth, each shareholder owns 40 shares, and how much is the par value per share? Pls. show formula.
Submitted: 3 years ago.
Category: Finance
Expert:  Lane replied 3 years ago.

NPVAdvisor :

Hi - The actual market value (what's it's really worth as a part of a person's net worth) of the stock - is whatever the market will bear. It the stock is publicly traded on the markets (NYSE, AMEX, NASDAQ or the over the counter - pink sheets) you can find that by looking in the paper, calling the firms that took it public, Stock tickers, etc ... very public information)

NPVAdvisor :

If it's private stock, the best indication is what the stock has been bought and sold at between the private parties (not as predictable because the market is not as liquid - quickly redeemable - as the publicly traded stocks), but it IS still a market and the best indication of the stick's value per share

NPVAdvisor :

Par value is really more of an accounting term, than an indication of the stock's value- it's the dollar amount that is assigned to a security when representing the value contributed for each share in cash or goods

NPVAdvisor :

It used to be that the par value of common stock was equal to the amount invested (as with fixed-income securities). However, today most stocks are issued with either a very low par value (such as $0.01 per share) or no par value at all.

NPVAdvisor :

Here's an excellent discussion from Investopedia:

NPVAdvisor :

You might be asking yourself why a company would issue shares with no par value. Corporations do this because it helps them avoid a liability to stockholders should the stock price take a turn for the worse. For example, if a stock was trading at $5 per share and the par value on the stock was $10, theoretically, the company would have a $5-per-share liability.

Par value has no relation to the MARKET VALUE of a stock. A no par value can still trade for tens or hundreds of dollars - it all depends on what the market feels the company is worth.

NPVAdvisor :

If the 1.5 mil in your question relates to a DOLLAR value, and each shareholder owns 40 shares, it may mean that the company initially ASSIGNED a par value of $37500 per share (1,500,000/40)

NPVAdvisor :

But again, nowadays there is no formula for par value. Its an assigned value at issue.

NPVAdvisor :

There IS a formula for BOOK value. (Which is really the dollar value remaining for common shareholders after allassets are liquidated and all debtors are paid) That formulas (for common stock) is .....

NPVAdvisor :

Book Value per share = ( Total Shareholder Equity - Preferred equity) / Total Outstanding shares

NPVAdvisor :

Basically, Book Value ( per share) is the amount of money that a holder of a common share would get if a company were to liquidate.

NPVAdvisor :

Let me know if you have questions.

NPVAdvisor :

Lane

Lane, JD, CFP, MBA, CRPS
Category: Finance
Satisfied Customers: 9183
Experience: Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
Lane and other Finance Specialists are ready to help you
Expert:  Lane replied 3 years ago.


Hi Sarah,

... just checking back in, as I never saw you come into the chat.

Let me know if I can help further.

Lane

Expert:  Lane replied 3 years ago.


Thanks for the rating Sarah.

Let me know if you need anything else.

Lane