What is the Nominal Value of Shares?
Nominal value of shares refers to the minimum value as decided of the particular type of shares issued by the company below which is calculated by dividing the value of total paid-up share capital of the company by the total number of the shares outstanding at the particular point of time.
Formula to Calculate the Nominal Value of Shares
The formula for nominal share value is quite simple, and it is derived by dividing the paid-up share capital by the outstanding number of shares of the company.
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For eg:
Source: Nominal Value of Shares (wallstreetmojo.com)
Steps to Calculate the Nominal Value of Shares
The formula can be derived by using the following steps:
- Firstly, determine the total paid-up share capitalPaid in Capital is the capital amount that a Company receives from investors in exchange for the stock sold in the primary market, including common or preferred stock. This considers the sale of stock that an issuer directly sells to the investor & not the sale of stock on the secondary market between investors. read morePaid in Capital is the capital amount that a Company receives from investors in exchange for the stock sold in the primary market, including common or preferred stock. This considers the sale of stock that an issuer directly sells to the investor & not the sale of stock on the secondary market between investors. read more, which is easily available as a line item in the balance sheet.
- Next, determine the number of outstanding shares of the companyOutstanding Shares Of The CompanyOutstanding shares are the stocks available with the company's shareholders at a given point of time after excluding the shares that the entity had repurchased. It is shown as a part of the owner's equity in the liability side of the company's balance sheet.read more. Please keep in mind, not the authorized shares but the paid-up shares are to be used.
- Finally, the formula is derived by dividing the total paid-up share capital (step 1) by the outstanding number of shares of the company (step 2), as shown below.
Nominal Value of Shares = Paid-up Share Capital / Number of Outstanding Shares
Examples
Example #1
Let us take the example of a company named ABC Ltd to calculate the stock nominal value. ABC Ltd is an ice cream manufacturing company, and it started its operation last year. So, this financial year was its first reporting year, and as per its balance sheet for the year ended on March 31, 2019, the paid-up share capital stood at $60,000 and retained earningsRetained EarningsRetained Earnings are defined as the cumulative earnings earned by the company till the date after adjusting for the distribution of the dividend or the other distributions to the investors of the company. It is shown as the part of owner’s equity in the liability side of the balance sheet of the company.read more of $120,000. The company currently has 2,500 authorized shares and 2,000 outstanding shares in the market.
Given,
- Paid-up share capital = $60,000
- Retained earnings = $120,000 (redundant)
- Number of authorized shares = 2,500 (redundant)
- Number of outstanding shares = 2,000
Based on the information, determine the following.
Therefore, it can be calculated as,
= $60,000 / 2,000
= $30.00 per share
Example #2
Let us take the example of Apple Inc.’s balance sheet for the period ended on September 29, 2018. The following financial information is available in the public domain.
Based on the information, determine the following.
Therefore, the calculation can be done as below
= $98,812 / (4,754,986,000 + 5,126,201,000)
= $0.00001 per share
Therefore, the nominal value of Apple Inc. as on September 29, 2018, stood at $0.00001 per share although the market value currently hovers around $200 per share.
Calculator
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Relevance and Uses
Although the concept is most commonly used for stocks or shares, it is equally useful in the case of bonds and preferred stock investors. The nominal value of shares is also known as face value, and it can any value from the range of $0.00001 per share to $10 per share.
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