Valuation of shares

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Valuation of shares

  1. 1. Valuation Of Shares <ul><li>Earning Capitalization </li></ul><ul><li>Method (ECM) </li></ul><ul><li> Dividend Capitalization </li></ul><ul><li>Method </li></ul><ul><li> Fair Value Method </li></ul><ul><li>Fair Value = Intrinsic Value + ECM </li></ul><ul><li>2 </li></ul>
  2. 2. Calculation Of Value on Intrinsic Value Basis <ul><li>Also Known as : </li></ul><ul><li>Intrinsic Value </li></ul><ul><li>Net Asset Value </li></ul><ul><li>Break up Value </li></ul><ul><li>Net Worth Per Share </li></ul><ul><li>Book Value Per Share </li></ul>
  3. 3. <ul><li>Valuation of Intrinsic Value : </li></ul><ul><li>Sundry Assets ---------- </li></ul><ul><li>Less: Sundry Liability ---------- </li></ul><ul><li>Add: Goodwill ( Revalued) ---------- </li></ul><ul><li>Add: Non Trade Investment ---------- </li></ul><ul><li>Less: Preference Share Capital and </li></ul><ul><li>Dividend in Arrear ---------- </li></ul><ul><li>Add: Notional Calls ---------- </li></ul><ul><li>Net Asset For ESH ====== </li></ul><ul><li>Divided By No. of Shares ---------- </li></ul><ul><li>Intrinsic Value ====== </li></ul>
  4. 4. <ul><li>Note: Goodwill will always be calculated for the purpose of Intrinsic Value </li></ul><ul><li>Note: Sundry Asset and Liability are after : </li></ul><ul><li>Revaluation </li></ul><ul><li>Rectification </li></ul><ul><li>New Policy etc. </li></ul><ul><li>Note: Always Calculate Intrinsic Value on Ex Dividend Basis. </li></ul><ul><li>Intrinsic Value = Int. Value + Div Per </li></ul><ul><li>Cum Dividend Ex Dividend Share </li></ul>
  5. 5. <ul><li>Earning Yield Method / Earning Capitalization Method / Yield Method </li></ul><ul><li>= Earning Rate × Paid Up Share Capital Per Share </li></ul><ul><li>NRR </li></ul><ul><li>Future Marketable - Non Trade Inv. </li></ul><ul><li>Profit Income Net of tax </li></ul><ul><li>Earning Rate = x 100 </li></ul><ul><li>Share Capital </li></ul><ul><li>Use : Where large no. of shares is to be valued ( Big Lots) </li></ul>
  6. 6. 2. Dividend Capitalization Method <ul><li>Dividend Rate x Paid up share cap per share </li></ul><ul><li>Normal Rate of return </li></ul><ul><li>Dividend Rate is rate of Dividend Company is expected to pay. </li></ul><ul><li>Normal Dividend Rate is NRR. </li></ul><ul><li>This method is applied for Small Lot of shares . </li></ul>
  7. 7. 3. Fair Value Method <ul><li>Fair Value = Intrinsic Value + ECM </li></ul><ul><li>2 </li></ul><ul><li>This method is to be used for valuation of shares for controlling Interest. </li></ul>
  8. 8. How to Calculate Normal Rate of Return <ul><li>NRR of Industry is taken as Base --------- </li></ul><ul><li>Add: Risk Factor ½ % Assumed --------- </li></ul><ul><li>( Risk Premium for each risk) </li></ul><ul><li>Ke of Companies NRR </li></ul><ul><li>Risk Factors: </li></ul><ul><li>Dividend Track Record </li></ul><ul><li>Dividend Coverage Ratio </li></ul><ul><li>Asset Backing Ratio </li></ul><ul><li>Debt Equity / Capital Gearing Ratio </li></ul>
  9. 9. <ul><li>Equity Dividend Coverage Ratio = </li></ul><ul><li>PAT – Preference Dividend with CDT </li></ul><ul><li>Equity Dividend </li></ul><ul><li>Preference Dividend Coverage Ratio = </li></ul><ul><li>PAT </li></ul><ul><li>Preference Dividend </li></ul>
  10. 10. <ul><li>Asset Backing Ratio = </li></ul><ul><li>Intrinsic Value Per Share </li></ul><ul><li>Paid up value per Share </li></ul><ul><li>Capital Gearing Ration = </li></ul><ul><li>Debt + Preference Share Holder </li></ul><ul><li>Equity – Losses – Preference Share Holder </li></ul><ul><li>Debt Equity = </li></ul><ul><li>Debt </li></ul><ul><li>Equity </li></ul>
  11. 11. 4. Valuation of Business <ul><li>It can be on the basis of: </li></ul><ul><li>Shares </li></ul><ul><li>Cash Flows </li></ul><ul><li>Value as per Share = Number of × Value of </li></ul><ul><li>Shares Shares </li></ul><ul><li>Value per share can be : MP , Intrinsic Value , Fair Value , ECM , DCM </li></ul><ul><li>Value of Business on Cash Flow Basis = </li></ul><ul><li>Cash flow of Business × Discount Factor </li></ul>

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