fracap

Fracap, short for fractional capitalization, is a financial term used to describe a situation where a company's stock is issued with a par value that is less than its actual market value. This practice is common in the United States, where the par value of a share is often set at a nominal amount, such as $0.01, regardless of the stock's true market value. Fracap allows companies to issue more shares at a lower cost, which can be beneficial for raising capital. However, it also means that the actual value of the company is not directly reflected in the par value of its shares. Investors should be aware of this discrepancy when evaluating a company's financial health and potential. Fracap is also used in the context of convertible debt, where a bond can be converted into a certain number of shares at a specified price, which may be lower than the market value. This can provide flexibility for both the issuer and the investor.