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VALUATION OF SHARES
M ETHODS   OF VALUATION


     Net assets method
     Earnings
    capitalization method
     Dividend
    capitalization method
     PE model
     Discounted cash
    flows method
N ET ASSETS METHOD
 Al so cal l ed as I nt r i nsi c
val ue m hod or Assess backi ng
          et
m hod
 et
 N Tr ade i nvest m s ar e
     on                ent
al so consi der ed
 Pr ef er ence shar e capi t al i s
not consi der ed
 Al l ot her cal cul at i on i s sam  e
as capi t al em oyed i n G
                pl            oodw l l
                                   i
val uat i on
Share value = NA/ No. of equity shares


Applied for companies
            - Under Winding Up
            - Ongoing companies that are capital
                    intensive
E ARNINGS CAPITALIZATION
METHOD
Under this method Earnings are capitalized with NRR
to arrive at the value of share

                        EPS
                        NRR



           NRR – Industry rate
A PPLICATION OF THIS
                                 METHOD



 Valuation of large block of shares
 Low capital intensive companies
Sometimes Assets may not provide correct
base for valuation of shares
 Long term Investors
D IVIDEND CAPITALIZATION
METHOD
Focus is on capitalization of dividends


                    DPS
                    NRR



    DPS – Dividend Per Share
    NRR – expected by shareholders
A PPLICATION   OF METHOD




 Small block of shares
 Current investors
P RICE EARNING RATIO MODEL
MV
            PE =
                 EPS



           MV = PE RATIO * EPS

PE ratio explains how many times earnings
per share able to recover the investment
A PPLICATION OF THIS
                                  METHOD



 valuing listed companies
 companies which are highly active in
stock market
Therefore this method is applicable only
to public companies shares.
D ISCOUNTED CASH FLOWS
METHOD
Future earning cash flows are
discounted to arrive at discounted cash
flows

Where net assets or earnings
capitalization is not able to value
correctly then we have to go for DCF.

focus is on future profits that arise
because of synergy
FAIR VALUE METHOD
VALUE              NA + EARNINGS
OF                        2
SHARE


  Where capital intensive & earnings also play an
                  important role
S PECIAL      POINTS


 when there is Calls – in – arrears  add it to share
capital assuming Notionally received. After calculating
value of fully paid shares reduce Calls – in – arrears to
arrive at value of partly paid shares
 No. of shares should be Equivalent number of shares
(Fully paid up)
 Ex dividend basis – proposed dividend shall be
deducted from net assets
 Cum dividend – proposed dividend should not be
deducted from net assets

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Valuation of shares

  • 2. M ETHODS OF VALUATION  Net assets method  Earnings capitalization method  Dividend capitalization method  PE model  Discounted cash flows method
  • 3. N ET ASSETS METHOD
  • 4.  Al so cal l ed as I nt r i nsi c val ue m hod or Assess backi ng et m hod et  N Tr ade i nvest m s ar e on ent al so consi der ed  Pr ef er ence shar e capi t al i s not consi der ed  Al l ot her cal cul at i on i s sam e as capi t al em oyed i n G pl oodw l l i val uat i on
  • 5. Share value = NA/ No. of equity shares Applied for companies - Under Winding Up - Ongoing companies that are capital intensive
  • 7. Under this method Earnings are capitalized with NRR to arrive at the value of share EPS NRR NRR – Industry rate
  • 8. A PPLICATION OF THIS METHOD  Valuation of large block of shares  Low capital intensive companies Sometimes Assets may not provide correct base for valuation of shares  Long term Investors
  • 10. Focus is on capitalization of dividends DPS NRR DPS – Dividend Per Share NRR – expected by shareholders
  • 11. A PPLICATION OF METHOD  Small block of shares  Current investors
  • 12. P RICE EARNING RATIO MODEL
  • 13. MV PE = EPS MV = PE RATIO * EPS PE ratio explains how many times earnings per share able to recover the investment
  • 14. A PPLICATION OF THIS METHOD  valuing listed companies  companies which are highly active in stock market Therefore this method is applicable only to public companies shares.
  • 15. D ISCOUNTED CASH FLOWS METHOD
  • 16. Future earning cash flows are discounted to arrive at discounted cash flows Where net assets or earnings capitalization is not able to value correctly then we have to go for DCF. focus is on future profits that arise because of synergy
  • 18. VALUE NA + EARNINGS OF 2 SHARE Where capital intensive & earnings also play an important role
  • 19. S PECIAL POINTS  when there is Calls – in – arrears  add it to share capital assuming Notionally received. After calculating value of fully paid shares reduce Calls – in – arrears to arrive at value of partly paid shares  No. of shares should be Equivalent number of shares (Fully paid up)  Ex dividend basis – proposed dividend shall be deducted from net assets  Cum dividend – proposed dividend should not be deducted from net assets