Par value is the value of a stock when it is initially issued to a company. The par value of a stock has no correlation to the market value of a stock. The market value is the price the stock is trading at based on public supply and demand. Most stock is issued with little or no par value to limit share liability if the market value drops below the par value. The only reason to divide the par value is when a company announces a stock split that either increases or decreases the number of issued shares; for example, taking a stock with five million shares and splitting each share in half to create10 million shares. The price per share is adjusted to reflect the split.
1. Obtain the stock split information voted and approved on by the Board of Directors. Most publicly traded companies will have this information on their websites. You can also use a third party research source.
2. Divide the split value factor into the existing stated par value. If the split is determined to be a reverse split, where initial outstanding shares are reduced, you would multiply the factor by the par value.
3. Assume XYZ company announces a four-for-one stock split (4:1). The initial par value was $1 per share. Divide the stated par value by four and each share by four. The new par value is $0.25 per share with four shares for each share previously issued.
4. Assume ABC company announces a reverse stock split of one-for-two (1:2). If the initial stated par value is $1, then the new par value is $2 ($1 times 2).
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