What does the term 'par value' refer to in common stock?

'Par value' refers to the stated or nominal value of the stock as designated in the corporate charter. It is the minimum price at which shares of common stock can be issued and does not reflect the actual market value. Par value is often set at a very low amount and is more of a legal and accounting figure rather than a reflection of the stock's market performance or the company's actual worth.

This figure serves a few key purposes: it helps prevent the company from issuing stock at a price lower than its par value, thereby protecting creditors and maintaining a certain level of equity.

In contrast, the actual market value of the stock is determined by supply and demand in the open market, which can be significantly higher or lower than the par value. The value set by shareholders for future pay-outs is more related to dividends and earning expectations, while the value of assets per share refers to the economic value based on a company's total assets divided by the number of outstanding shares, which is a different measurement entirely. Understanding these distinctions is critical in accounting and finance, particularly in an HR context when evaluating compensation packages that may include stock options or grants.