Final answer:
The par value of a company's shares represents its book value, a nominal value assigned to stock that does not reflect the actual market value or what shareholders may retrieve through sales. After an IPO, the company does not receive further funds from the trading of its stock, but investors gain returns through dividends and capital gains.
Step-by-step explanation:
When all of a company's stock is of the par-value type, the par value of the shares represents the company's book value, which stockholders cannot withdraw. The term par value is a nominal value assigned to a share of stock and does not necessarily reflect its market value. It is mainly of historical interest and has little to do with the actual worth of the shares in the marketplace.
Stock represents ownership in a firm, and the ownership is divided into shares. When a company issues stock for the first time to the public, this event is called an Initial Public Offering (IPO). Hence, through an IPO, the firm receives financial capital.
It's important to note that after the initial offering, the firm does not get any funds when stock changes hands between investors. Instead, the investors themselves experience a rate of return in two forms: through dividends and capital gains. Dividends are direct payments from the firm to shareholders. Capital gains occur when an investor sells the stock for more than the purchase price.
The book value of a company, as reflected by its stock's par value, is distinct and not to be confused with its market capitalization, liquidation value, or resale value. Market capitalization reflects the total market value of a company's outstanding shares, whereas liquidation value is the amount that could be realized if all assets were sold and liabilities were paid off. The resale value pertains to what an investor may get when selling the share to another investor.