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Valuation Of Shares

Valuation Of Shares

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Valuation Of Shares

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  1. Valuation Of Shares Earning Capitalization Method (ECM) Dividend Capitalization Method Fair Value Method Fair Value = Intrinsic Value + ECM 2 www.SafeeCollege.com

  2. Calculation Of Value on Intrinsic Value Basis Also Known as : • Intrinsic Value • Net Asset Value • Break up Value • Net Worth Per Share • Book Value Per Share www.SafeeCollege.com

  3. Valuation of Intrinsic Value : Sundry Assets ---------- Less: Sundry Liability ---------- Add: Goodwill ( Revalued) ---------- Add: Non Trade Investment ---------- Less: Preference Share Capital and Dividend in Arrear ---------- Add: Notional Calls ---------- Net Asset For ESH ====== Divided By No. of Shares ---------- Intrinsic Value ====== www.SafeeCollege.com

  4. Note: Goodwill will always be calculated for the purpose of Intrinsic Value Note: Sundry Asset and Liability are after : Revaluation Rectification New Policy etc. Note: Always Calculate Intrinsic Value on Ex Dividend Basis. Intrinsic Value = Int. Value + Div Per Cum Dividend Ex Dividend Share www.SafeeCollege.com

  5. Earning Yield Method / Earning Capitalization Method / Yield Method = Earning Rate× Paid Up Share Capital Per Share NRR Future Marketable - Non Trade Inv. Profit Income Net of tax Earning Rate = x 100 Share Capital Use : Where large no. of shares is to be valued ( Big Lots) www.SafeeCollege.com

  6. 2. Dividend Capitalization Method Dividend Rate x Paid up share cap per share Normal Rate of return • Dividend Rate is rate of Dividend Company is expected to pay. • Normal Dividend Rate is NRR. • This method is applied for Small Lot of shares. www.SafeeCollege.com

  7. 3. Fair Value Method Fair Value = Intrinsic Value + ECM 2 This method is to be used for valuation of shares for controlling Interest. www.SafeeCollege.com

  8. How to Calculate Normal Rate of Return NRR of Industry is taken as Base --------- Add: Risk Factor ½ % Assumed --------- ( Risk Premium for each risk) Ke of Companies NRR Risk Factors: • Dividend Track Record • Dividend Coverage Ratio • Asset Backing Ratio • Debt Equity / Capital Gearing Ratio www.SafeeCollege.com

  9. Equity Dividend Coverage Ratio = PAT – Preference Dividend with CDT Equity Dividend Preference Dividend Coverage Ratio = PAT Preference Dividend www.SafeeCollege.com

  10. Asset Backing Ratio = Intrinsic Value Per Share Paid up value per Share Capital Gearing Ration = Debt + Preference Share Holder Equity – Losses – Preference Share Holder Debt Equity = Debt Equity www.SafeeCollege.com

  11. 4. Valuation of Business It can be on the basis of: • Shares • Cash Flows • Value as per Share = Number of × Value of Shares Shares Value per share can be : MP , Intrinsic Value , Fair Value , ECM , DCM • Value of Business on Cash Flow Basis = Cash flow of Business × Discount Factor www.SafeeCollege.com