Share/Bond valuation

2. Tayyab Ali
BBAE-19-19
Valuation of shares
Semester 33rd
Ghazi university DGK
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3. VALUATION OF SHARES

5. VALUES OF SHARES
▪ Face Value
▪ Book Value
▪ Cost Value
▪ MarketValue
▪ Capitalised Value
▪ Fair Value

6. VALUES OF SHARES
❑Face Value
▪ A Company my divide its capital into shares of
@10 or @50 or @100 etc.
▪ Company’s share capital is shown as per Face
Value of Shares.
▪ Face Value of Share = Share Capital
Total No of Share
▪ This Face Value is printed on the share certificate.
▪ Share may be issued at less (or discount) or more
(or premium) of face value.

7. VALUES OF SHARES
❑Book Value
Book Value of Share = Book Value of Company
Total No. of Shares
Where,
Book Value of Company =
Share Capital
+ Reserves
+ Accumulated Profits
– Accumulated Losses

8. VALUES OF SHARES
❑Intrinsic Value
Intrinsic Value of Share= Net Assets of Company
Total No. of Shares
where,
Net Assets =
Fixed Assets
+ CurrentAssets
+ Investments
- Outside Liabilities with Debentures
- PreferenceShareCapital

9. VALUES OF SHARES
❑Capitalised Value
Capitalised Value of Share =
Capitalised Value of Profit
Total No. of Shares

10. VALUES OF SHARES
❑FairValue
Fair Value of Share =
Value of Share by NAV Method + Value of Share by Yield Method
Total No. of Shares

11. VALUES OF SHARES
❑Cost Value
Price on which the shares are purchased with
purchase expenses such as Brokerage,
Commission etc.
❑Market Value
Price on which the shares are purchased or sold.
This value may be more or less or equal than Face
Value.

12. METHODS OF VALUATION
▪ Net Assets Value (NAV) Method
▪ Dividend Yield Method
▪ Earning Capacity (Capitalisation) Method
▪ Average(Fair Value)Method

13. METHODS OF VALUATION
❑Net Assets Value(NAV) Method
▪ Net asset value is the value of a
fund’s assets minus any liabilities and
expenses.
▪ The NAV (on a per-share basis)
represents the price at which
investors can buy or sell units of the
fund.
▪ When the value of the securities in
the fund increases, the NAV
increases.
▪ When the value of the securities in
the fund decreases, the NAV
decreases.

14. METHODS OF VALUATION
❑Net Assets Value (NAV)Method
Intrinsic Value of Share = Net Assetsof Company
Total No. of Shares
where,
NET ASSETS = NET ASSETS =
EquityShare Capital
+ Reserves & Surplus
+ Profit on Revaluation ofAssets
- Accumulated Losses
- FictitiousAssets
- Loss on Revaluationof Assets
Fixed Assets
+ Current Assets
+ Investments
+ IntangibleAssets
- Outside Liabilitieswith Debentures
- Preference Share Capital

15. METHODS OF VALUATION
▪ Example
an investment company has securities and
other assets worth $100 million and has
liabilities of $10 million, the investment
company's NAV will be $90 million. Because
an investment company's assets and
liabilities change daily, NAV will also change
daily. NAV might be $90 million one day,
$100 million the next, and $80 million the
day after.

16. METHODS OF VALUATION
❑Dividend Yield Method
▪ Investorsare interestedin income.
▪ They have to price of a share upon the size of
expected dividends.
▪ Value of share is calculated by comparing the
Expected Rate of Dividend of a company with
Normal Rate of Dividend as prevailing in that
industry.

17. METHODS OF VALUATION
❑Dividend Yield Method
where,
PROFIT AVAILABLEFOR DIVIDEND TO
EQUITY SHARE HOLDERS =
EXPECTEDRATE OF DIVIDEND =
Profit of the Company Profit Availableof Dividend
Total EquityPaid Up Capital
X 100
- Income Tax
- TransferToReserves
- TransferToDebentureSinkingFund
- Preference Dividend

18. METHODS OF VALUATION
❑Dividend Yield Method
Value of Share =
Expected Rate of Dividend
X Paid UP Value of Share
Normal Rate of Dividend

20. METHODS OF VALUATION
❑Earning Capacity (Capitalisation) Method
▪ Based on the assumption that the company
will continue to operate the business.
▪ If a investorwish to obtain controlling interest
then the shares value is calculated on the
basis of Earnings rather than Dividend.
▪ Value of share is calculated by comparing the
Rate of Earningsof a companywith Normal
Rate of Return as prevailing in that industry.

21. METHODS OF VALUATION
❑Earning Capacity (Capitalisation) Method
Value of Share =
Rate of Earnings
X Paid UP Value of Share
Normal Rate of Return

22. METHODS OF VALUATION
❑Earning Capacity (Capitalisation)Method
where,
RATE OF EARNINGS = PROFIT EARNED= NET CAPITAL EMPLOYED
Profit Earned
X 100
Net CapitalEmployed
Profit of the Company
- Income Tax
+ Intereston Debenture
+ Preference Dividend
Fixed Assets at MV
+ Current Assets except Invest.
- Current Liabilities

23. METHODS OF VALUATION
Average(Fair Value)Method
Fair Value of Share =
Value of Share by NAV Method + Value of Share by Yield Method
Total No. of Shares