methods of valuation of shares

1. 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

6. E ARNINGS CAPITALIZATION
METHOD

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

9. D IVIDEND CAPITALIZATION
METHOD

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

17. FAIR VALUE METHOD

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