What Is Par Amount and How Does It Impact Stocks and Bonds?

Also, higher par values can lead to higher taxes in some states. The accounting treatment of no-par value shares what is a par value is simpler than that of par value shares. When issued, the entire proceeds are credited as share capital, eliminating the need for an additional paid-in capital account. This streamlined approach simplifies balance sheet presentation and financial analysis. Let’s look into an example indicating the relevance of face value.

Free Financial Modeling Lessons

For bonds and other fixed-income assets, it shows the maturity value and the dollar value of the coupon (or interest) payments that are due to the bondholder. Also called nominal or original value, par value is the opposite of market value, which fluctuates every day. In common stock trading, par value usually plays a negligible part. Companies set a par value for their common stock because they are often legally required to do so.

• It’s helpful to think of preferred stock as a hybrid of bonds and common stock.
• Par value is a primary component of fixed-income securities and represents the value of a contractual agreement between the issuing party and the bondholder.
• The par value of stock has no relation to market value and, as a concept, is somewhat archaic.