VALUATION OF SHARES

Need and Methods

Shares
Meaning:-
The capital of the company can be divided into
different units with definite values called shares.
Thus a share is the shared capital in the firm giving
ownership right to the shareholder
Types of Shares
There are two types of shares that a company
may issue-
1. Preference Shares: A Preference share has
following two features-

(i) A right to receive dividend at a given

rate or amount before any dividend is paid.
(ii) A right to repayment of capital in the
event of winding-up of company.
2. Equity Shares: An Equity share has following
features-

(i) It gets dividend and repayment after payment

to preference shareholders.

(ii) Rate of dividend is not fixed and is determined

by Directors.

(iii) Such shareholders may go without any

dividend if no profit is made.

(iv) They also have voting rights proportionate to

one’s share in the paid-up equity capital.
Par value of shares:
An amount is noted on each share of a company.
This is known as the Par value of the share. It is
also known as the face value of the share.

Market value of Share:

It is the value at which the share is sold or
purchased in the market.
Market value may be more or less than the face
value of the share.
 Valuation of Shares
The shares which are included in the list of stock exchange
are quoted but the shares which are not quoted are
valued by various methods.

Need for Valuation:-

(i) When two or more companies amalgamate
(ii) When absorption of a company takes place.
(iii) When some shareholders do not give their consent for
reconstruction of the company, there shares are valued for the
purpose of acquisition.
(iv) When shares are held by the partners jointly in a company and
dissolution takes place., it becomes necessary to value the
shares for proper distribution of partnership property among
the partners.
(v) When a loan is advanced on the security of
shares.
(vi) When shares of one type are converted into
shares of another type
(vii) When some company is taken over by the
government, compensation is paid to the
shareholders of such company and on this
occasion, valuation of shares is made.
(viii) When a portion of shares is to be given by a
member of proprietary company to another
member, fair price of these shares has to be
made by an auditor or accountant.