Valuation of shares

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methods of valuation of shares

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Valuation of shares

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

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