In finance, par value is the least amount that a share of stock can be sold for, according to the terms and conditions that are found in the regulations of the issuing company. In most cases, the par value will also be the initial trading price for the stock when it is introduced in the market place. However, the expectation is that the par value for the stock will shortly be exceeded by a higher market price.
It is important to remember that the establishment of a par value for a stock offering is essential to the basic structure of any stock. By establishing the minimum amount or price that a stock can be traded, the company makes places a limit on how far the stock can fall before being removed from active trading. This helps protect the company from any attempts to devalue the stock below a certain point and thus make it possible for raiders to acquire cheap stock and a controlling interest in the corporation.
At the same time, the designation of a par value does not in any way inhibit the upward price that the stock can command in an investment market. This is an important point for investors to keep in mind, since the par value is also understood to be the face value as well. This means that the investor will want to look at three factors when considering a stock purchase.
First, the investor will want to determine the current stated value of the stock. This will be the amount he or she will pay per share to acquire the stock. Next, understanding the par value of the stock is important, since that will help the investor know just how low the stock could conceivably go in an extreme situation. Last, the investor will want to look at current indicators that project future performance of the stock. This will help the investor anticipate changes in the market that will either result in a return from the investment, or the shares of stock beginning a downward trend that will bring the market value of the shares closer to the par value rate.
