What is Face Value of a Share?

Meaning and Definition:

When a company wishes to raise share capital it breaks down sum into a number of small sized units to make it affordable for people to buy or subscribe for the shares. This basic, broken down, unit value of a share is called its face value. It is also called the nominal value of the share.

In India it is common for companies to keep the face value of the share at Rs.10 and letter as the company grows and the market price of the share becomes very large, the face value is split into smaller sizes of Rs.5 or 1.

Example:

ABC Ltd. is planning to raise Rs.1000 crores (one crore is ten million) to set up a hydroelectric project. It has decided to break down the capital into Rs.10 a unit so that general public can easily buy. In this case ABC Ltd. will issue 100 crore shares of Rs.10 each. This Rs.10 is the face value of the share.

Description	Unit	Quantity
Face Value of Share	Rs. per share	10
Number of shares issued	Number in crores	100
Total Capital Raised	Rs. in crores	1000

Practically shares are issued at a premium or discount to the face value and actually in this context the word face value becomes significant.

Example:

Let us assume that ABC Ltd. is already operating many hydroelectric projects successfully and its shares are already listed on stock exchanges and trading at Rs.900 apiece. Let us also assume that it is intending to raise the fresh capital for expansion and has decided to issue the share at Rs.800.

Description	Unit	Quantity
Market Price	Rs. per share	900
Issue Price	Rs. per share	800
Premium	Rs. per share	790
Face Value of Share	Rs. per share	10
Number of shares issued	Number in crores	1.25
Total Capital Raised	Rs. in crores	1000

A similar treatment is given if the shares are issued at a discount.

Example:

Let us assume that ABC Ltd. is a large government company already operating many hydroelectric projects and is the market leader but has been ailing and in losses but undertaking a major restructuring with the government help and its shares are already listed on stock exchanges and trading at Rs.9 apiece. Let us also assume that it is intending to raise the fresh capital for expansion and has decided to issue the share at Rs.8. The market believes that ABC Ltd. is going to make successfully restructure its operations and become a very successful and dominant player in the next five years and it’s share price is expected to grow to Rs.40 apiece by then.

Description	Unit	Quantity
Market Price	Rs. per share	9
Issue Price	Rs. per share	8
Discount	Rs. per share	2
Face Value of Share	Rs. per share	10
Number of shares issued	Number in crores	125
Total Capital Raised	Rs. in crores	1000

Conclusion:

The face value or nominal value of a share is the basic amount into which the capital of the company is divided irrespective of at what price the share may actually be sold. In India normally the face value is kept at Rs.10 and afterwards split into smaller denominations.

What is a Non Performing Asset (NPA)?

Meaning and Definition:

In the Indian financial parlance, a non-performing asset is a bad loan that is not able to service either interest or principal or both for a period over 90 days.

Significance:

Indian banks, especially public or government sector (PSU) banks have accumulated huge amounts of NPAs over the past many years. The reasons for NPAs are threefold:

Borrowers deliberately not repaying bank loans;

Even good and healthy companies coming under stress on account of global events – for example the worldwide collapse in commodity prices have stressed producers of crude oil, minerals and metals;

Improper credit decisions by banks;

Remedy:

In order to prevent the collapse of the banking system, like the 2008 Lehman Brothers event, The Reserve Bank of India (RBI), especially under the previous governor Raghuram Rajan, pushed all the banks to rid their balance sheets of bad loans by making adequate provisions for losses. As a result almost all banks have been writing of bad loans in the last few quarters.

In the mean time, The Government of India has also pledged and indeed infusing fresh capital to strengthen the PSU Banks.

Is the cure permanent?

PSU banks have been recapitalized in the past but had fallen back to the old and inefficient ways in the past. It remains to be seen whether this time around the cure is permanent or one more repetitive instance.

Non Performing Asset (NPA) - Slide

What is Profit After Tax (PAT)?

Meaning and Definition:

Profit After Tax (PAT) is the net profit earned by the organization after meeting all expenses and charges, including material costs, all operating expenses, depreciation, interest and income tax.

Formula:

PAT	=	Sales Revenues	−	All Expenses Including Depreciation, Interest, Tax but Excluding Appropriations
OR
PAT	=	PBT	−	Income Tax

Significance:

It is the last line in the profit and loss statement and therefore earned the popular jargon-phrase, bottom-line – which has further expanded into contemporary common English usage, “What is the bottom-line?” Which means, “What does it boil down to?” or “What is final result?”.

PAT does not include post tax appropriations or allocations like dividends or set asides towards reserves because such allocations are not a charge against profits but mere discretionary allocation of profits already earned.

Happy Piglet Loves PAT

Example:

	M/s.Old & Conservative Ltd.	M/s.New & Extravagent Ltd.
Sales	1500.00	1520.00
All Costs & Expenses before Depreciation, Interest, Tax and Appropriations	800.00	810.00
Depreciation	30.00	100.00
Interest	0.10	70.00
Earnings after Depreciation and  Interes but Before, Tax and Appropriations (EBTA or EBT)	669.90	540.00
Non-Operating Income	300.00	150.00
Profit Before Tax (PBT)	969.90	690.00

Conclusion: 

Profit After Tax (PAT) is the bottom-line of the profit and loss statement as well as the investor’s interest in a stock and therefore is the most important and only metric that actually matters.