Valuation of Shares

A Study on Valuation of Shares
Introduction of the study
In modern days the valuation of shares plays an important role in Corporate

Accounting. Valuation of shares is one of the most important problem faced by
the accountants. Because there are numerous and varied financial, non-financial,
accounting and non –accounting consideration for valuation of shares. Further,
some considerations may be objective or subjective. Whatever it may be, the
basic principles for valuation of shares are not at all difficult but application of
these principles required special knowledge of various techniques used for
valuation of shares.
In the ordinary course of action, the shares of most of the

companies are listed in the stock exchange market. Hence, the price quoted in
the stock exchange market may be taken as value of the shares for ordinary
transactions in shares of the company. However, in practice the price quoted in
the stocks exchange is not acceptable whenever a large lot of shares of a
company is to be transferred. Under such circumstances the need for separate
valuation of shares arises. Further, the shares of some private limited companies
may not listed in the stock exchange, in the case also the need for valuation of
shares arises.
Objectives of the Study
1. To study different types of valuation of shares.

2. To find out the valuation of shares using different types of methods.
3. To make the comparison of valuation of shares
Bhandari and Rathi College. Guledgudd Page 1

Scope of the study
Scope refers to area of the study. This study is relating to National Minority
Credit Co- operative Society Ltd. Badami, and considering only three years
financial statements i.e. 2014-15, 2015-16 and 2016-17 using different types of
methods for finding valuation of shares.
Need for the study
To start any business capital plays major role. Capital can be acquired in
two ways by issuing shares or by taking debt for financial institutions or
barrowing money from financial institutions. The owners of the company have
to pay regular interest and principal amount at the end.
Hence the valuation of shares may be done for two reasons.
1) Where there is no market price as in the case of proprietary company.

2) Where for special reasons, the market price does not reflect the true or
intrinsic value of the shares.
This problem does not arise if the shares are quoted on stock exchange as it
provides a ready means of ascertaining the value placed on such shares by
buyers and sellers.

Methodology
The use of proper methodology is an essential part of any research. In
order to conduct the study scientifically suitable methods and measures are to be
followed.
Methodology is nothing but a plan or a strategy of the investigation

process that sets out to obtain solution to the study
Sources of Data:
The information required is collected through the following sources.
Primary Data
Primary Data can be called as collection of information for the first time and
first-hand information which may not have been collected from others. Primary
data is inclusive of;
Questioning the executives of the company.
Secondary Data:
Secondary data are the data which have been collected by the organization for
the future use. For this project secondary data is collected from the consolidated
financial statements and other reports.
Limitations of the study

1. The collection of data for analysis is restricted National Minority Credit Co-
operative Society Ltd only.
1. Shortage of time is their major limiting factor to the study.
2. This study is purely academic interest.

Introduction
In the cases of shares quoted in the recognized Stock Exchanges, the prices
quoted in the Stock Exchanges are generally taken as the basis of valuation of
those shares. However, the Stock Exchange prices are determined generally on
the demand-supply position of the shares and on business cycle. The London
Stock Exchange opines that the Stock Exchange may be linked to a scientific
recording
instrument which registers not its own actions and options but the actions and
options of private institutional investors all over the country/world. These
actions and options are the result of fear, guesswork, intelligent or otherwise,
good or bad investment policy and many other considerations. The quotations
what result definitely do not represent valuation of a company by reference to
its assets and its earning potential. Therefore, the accountants are called upon to
value the shares by following the other methods.
Concept of Valuation of Shares:

The need for valuation of shares arises in the following circumstances-
1. Amalgamation in Nature of Purchase: When two companies doing similar
nature of business form a new company, it is called amalgamation. In such a
case, valuation of shares required for calculation of purchase consideration.
2. Reconstruction of a Company: The valuation of shares is required to make

payment to dissenting shareholders.
3. Conversion of Shares: When shares of one class are converted into another,
the valuation of shares is required.

4. Nationalisation of Company: When the company is nationalised the share

value is required to compensate the shareholders.
5. For Assessment under the Wealth Tax Act and Gift Tax Act: For making
payment of duty under the Gift Tax act, valuation of shares is required. Further,
for calculation of Wealth tax the assessment Officer is required to value shares.
6. For Taking Loan against Security of Shares: When the loan is to be

granted on security of shares, valuation of shares is required.
7. Determining the Net Assets of the Company: The Investment or finance

companies value their shares to determine the net assets of the company.
Factors Affecting Valuation of Shares:

Factors affecting the valuation of shares are similar to those which affect the
valuation of goodwill of a company. Important factors which affect the
valuation of shares are as under:
1. Earning Capacity of the Company: The valuation of shares depends upon
the present and future earning capacity of the company. It the future earning
capacity is higher than the normal rate of return the value of share shall be high.
2. Yield from Similar Companies: The value of the share is also affected by
the return expected by the investors from similar companies.
3. Dividend Policy: The companies which distribute steady dividend command

high Price-Earning Ratio.

4. Corporate Governance: Companies which have good corporate governance

record high price ratio which affect the valuation of shares.
5. Reputation of Management: Corporate have efficient management

command relatively higher prices.
6. Financial Ratios: The Companies with good financial ratios such as debt-
equity ratio, return on net worth, operating profit ratio affect the valuation of
ratio.
7. Bonus or Right Issue: Value of shares go high when bonus or right issues
are announced by the company.
8. Government Policy: Government offer incentives, tax holidays to some

industries to enable them to grow. These incentives affect the valuation of
shares of the company.
9. Composition of the Customers: If the product of the company is consumed

by a single buyer the business risk is high which affects the valuation of the
share of the company.

Methods of Valuation of Shares

Certain methods have come to be recognized for valuation of shares of a
company,
1. Net assets Method or Intrinsic value method or Breakup value method

2. Yield method
a) Valuation based on rate of return
b) Valuation based on price earnings ratio
c) Valuation based on productivity factor
3. Fair valuation method

Intrinsic Value Method

This method is also called as Assets Backing Method, Real Value Method,
Balance Sheet Method or Break-up Value Method. Under this method, the net
assets of the company including goodwill and non-trading assets are divided by
the number of shares issued to arrive at the value of each share. If the market
value of the assets is available, the same is to be considered and in the absence
of such information, the book values of the assets shall be taken as the market
value. While arriving at the net assets, the fictitious assets such as preliminary
expenses, the debit balance in the Profit and Loss A/c should not be considered.
The liabilities payable to the third parties and to the preference shareholders is
to be deducted from the total asset to arrive at the net assets. The funds relating
to equity shareholders such as General Reserve, Profit and Loss Account,
Balance of Debenture Redemption Fund, Dividend Equalization Reserve,
Contingency Reserve, etc. should not be deducted.
Under this method, the net value of assets of the company are divided by
the number of shares to arrive at the value of each share. For the determination
of net value of assets, it is necessary to estimate the worth of the assets and
liabilities. The goodwill as well as non-trading assets should also be included in
total assets.
1. While computing the amount of assets, following points must be

considered-All Fixed assets should be considered at their market value or
net realisable value should be considered and if it is not then it should be
considered at their book value and provision for depreciation should be
made.
2. Provision for Bad and Doubtful Debts against debtors should be made.

3. All Fictitious assets appearing under the head Miscellaneous \Expenditure

such as preliminary expenses, discount on issue of debentures,
underwriting commission should be ignored
4. All Intangible assets such as goodwill, patents, trademark etc should be
considered whether considered in balance sheet or not. The valuation of
Goodwill should be on the basis of number of year’s purchase of super
profit, annuity method or capitalization of future maintainable profit
method.
5. All investments should be considered for valuation of shares. Quoted
shares should be valued at their market price and those assets which are
not quoted should be valued after taking the effect of losses and gains
6. Stock of finished goods should be valued at their market price and raw
materials and work in progress should be valued at their cost.
While calculating the liabilities, following points may be considered:

1. All Liabilities whether appearing in balance sheet or not should be
considered.
2. Adequate provision for contingent liabilities should be made.
3. Provision for Taxation should be made.
4. In calculating the value of equity shares, the amount payable to
preference shareholders including arrears of dividend payable on
reference shares must be deducted from net assets.
The net value of assets, determined so has to be divided by number of equity

shares for finding out the value of share. Thus the value per share can be
determined by using the following formula:

Formula –
Valuation of shares = Net assets available to Equity share holders
Number of equity shares
Therefore a net asset available to equity shareholders is calculated as fallows.
In the Books of …………………………. Ltd

Calculation of value of net assets
Market value of assets
Goodwill XXX
Land and Building XXX
Plant and Machinery XXX
2. Investment (Non Trading) XXX
Stock in trade XXX
Sundry Debtors XXX
Bills Receivables XXX
Cash / Banks XXX
Advances XXX
Calls in arrears XXX
XXXXX XXXXX
Outside liabilities and preference
Less
share capital
Sundry Creditors XXX
Bills Payable XXX
Provision for income tax XXX
Debentures XXX
Term loans XXX
Outstanding Expenses XXX
Preference Share Capital XXX
XXXXX XXXXX
Net Assets available to Equity
XXXXX
Shareholders
Yield or Market Value Method of Valuation of Shares
The term “Yield” refers to the expected rate of return on an investment. The rate
of return is actual return earned by the shareholder on the investment. In the Net
assets method, the information about potential profit is not considered or not

available. Since the business enterprise is assumed to be a going concern,

investor is interested to know Profit potential. The expected rate of return in
investment is denoted by yield. The term "rate of return" refers to the return
which a shareholder earns on his investment. Further it can be classified as
(a) Rate of earning and
(b) Rate of dividend. In other words,
Yield may be earning yield and dividend yield.
This method of valuation of shares is suitable for small block of shares. The
value of share is obtained by comparing the expected rate of dividend with the
normal rate of dividend.

a. Earning Yield
Earning Capitalization Method This method considers the earning potential

of the company for valuation of shares. It is argued against Dividend yield
method that a company with high potential earnings may not declare high rate
of dividend, therefore share valued on the basis of dividend yield does not
reflect the actual worth. The Earning Capacity method takes into account the
actual earnings of the company and hence is considered more appropriate for
large block of shares.
Under this method, shares are valued on the basis of expected earning and
normal rate of return. The value per share is calculated by applying
following formula:
Value Per Share = (Expected rate of earning / Normal rate of return) X
Paid up value of equity share

Expected rate of earning = (Profit after tax/paid up value of equity share)

X 100
b. Dividend Yield
Under this method, shares are valued on the basis of expected dividend and
normal rate of return. The value per share is calculated by applying
following formula:
Expected rate of dividend = (profit available for dividend/paid up equity

share capital) X 100
Value per share = (Expected rate of dividend/normal rate of return) X 100
3. Earning Capacity Method of Valuation Of Shares
Under this method, the value per share is calculated on the basis of disposable
profit of the company. The disposable profit is found out by deducting reserves
and taxes from net profit. The following steps are applied for the determination
of value per share under earning capacity:
Step 1: To find out the profit available for dividend

Step 2: To find out the capitalized value
Capitalized Value =
(Profit available for equity dividend/Normal rate of return) X 100

Step 3: To find out value per share
Value per share = Capitalized Value/Number of Shares

Distinction between Net assets method and Yield method
Distinction Yield Method

SI.No Net Assets Method
Points
This method of valuation of This method of valuation of
1 Suitable shares is suitable when goes share is suitable when company
into liquidation. continues its existence.
The valuation approach of this The valuation approach of this
2 Optimistic
method is not optimistic. method is more optimistic.
The valuation approach of this The valuation approach of this
3 Realistic
method is not realistic. method is more realistic
The value of a share based on The value of share based on
4 Basis market value of assets and profit available.
liabilities.
The Value of share under this The Value of share under this
method is less reliable as assets method is more reliable as the
5 Reliability
market value may not be necessary data is taken from the
correct published source.
Under this method investors Under this method investors are
Interested in are not interested in income as more interested in income as
6
income company is liquidating company is continuing its
business
INTRODUCTION TO CO-OPERATIVE BANKING:

Co-operative bank, in a nutshell, provides financial assistance to the
people with small means to protect them from the debt trap of the
moneylenders. It is a part of vast and powerful structure of co-operative
institutions which are engaged in tasks of production, processing, marketing,
distribution, servicing and banking in India. A co-operative bank is a financial
entity which belongs to its members, who are at the same time the owners and
the customers of their bank. Co-operative banks are often created by persons
belonging to the same local or professional community or sharing a common
interest. These banks generally provide their members with a wide range of
banking and financial services (loans, deposits, and banking accounts) Co-
operative banks differ from stockholder banks by their organization, their goals,
their Values and their governance.
The Co-operative Banking System in India is characterized by a

relatively comprehensive network to the grass root level. This sector mainly
focuses on the local population and micro- banking among middle and low
income strata of the society. These banks operate mainly for the benefit of rural
areas, particularly the agricultural sector.
ORIGIN OF CO-OPERATIVE BANKING:
The beginning co-operative banking in India dates back to about 1904,

when official efforts were made to create a new type of institution based on
principles of co-operative organization & management, which were considered
to be suitable for solving the problems peculiar to Indian conditions.
The philosophy of equality, equity and self help gave way to the
thoughts of self responsibility and self administration which resulted in giving

birth of co-operative. The origin on co-operative movement was one such event-
arising out of a situation of crisis, exploitation and sufferings.
Co-operative banks in India came into existence with the enactment

of the Agricultural Credit Co-operative Societies Act in 1904. Co-operative
bank form an integral part of banking system in India. Under the act of 1904, a
number of co-operative credit societies were started. Owing to the increasing
demand of co-operative credit, anew act was passed in 1912, which was
provided for establishment of co-operative central banks by a union of primary
credit societies and individuals.
Co-operative Banks in India are registered under the Co-operative
Societies Act. The cooperative bank is also regulated by the RBI. They are
governed by the Banking Regulations Act 1949 and Banking Laws
(Cooperative Societies) Act, 1965.
OPERATION OF CO-OPERATIVE BANKING:
Establishments:
Co-operative bank performs all the main banking functions of

deposit mobilization, supply of credit and provision of remittance facilities.
 Co-operative Banks belong to the money market as well as to the

capital market.
 Co-operative Banks provide limited banking products and are
functionally specialists in agriculture related products. However,
cooperative banks now provide housing loans also.
 UCBs provide working capital loans and term loan as well.

The chief functions of Co-operative banks are:
a) To attract deposit from non-agriculturist

b) To use excess funds of some societies temporarily to make up for
shortage in another,
c) To supervise and guide affiliated societies.
The basic principles on which a Co-operative bank works are:
 A co-operative character of activities and trait of mutual aid of credit

granted.
 Catering for collective organizations and their members.
 Restriction on the number of individual vote.
As a result, during 2007-08, the Primary Cooperative Agriculture
and Rural Development Banks have again started lending for the Non
Farm Sector including Jewel Loans.
 Aiming at high rates on deposits and low rates on lending.

 Limitation of dividends out of profits and bonus to depositors and
borrowers or grants to cultural or co-operative Endeavour.
DEFINATION:
“A Co-operative bank, as its name indicates is an institution

consisting of a number of individuals who join together to pool their surplus
savings for the purpose of eliminating the profits of the bankers or money
lenders with a view to distributing the same amongst the depositors and
borrowers.”
ROLE OF CO-OPERATIVE BANKING IN INDIA:

Co-operative Banks are much more important in India than anywhere

else in the world. The distinctive character of this bank is service at a low cost
and service without exploitation. It has gained its importance by the role
assigned to them, the expectations they are supposed to fulfill, their number,
and the number of offices they operate. Co-operative banks role in rural
financing continues to be important day by day, and their business in the urban
areas also has increased phenomenally in recent years mainly due to the sharp
increase in the number of primary co-operative banks. In rural areas, as far as
the agricultural and related activities are concerned, the supply of credit was
inadequate, and money lenders would exploit the poor people in rural areas
providing them loans at higher rates. So, Co-operative banks mobilize deposits
and purvey agricultural and rural credit with a wider outreach and provide
institutional credit to the farmers. Co-operative bank have also been an
important instrument for various development schemes, particularly subsidy-
based programs for poor.
The Co-operative banks in rural areas mainly finance agricultural
Based activities like:
 Farming
 Cattle
 Milk
 Hatchery
 Personal finance
The Co-operative banks in urban areas finance in activities like:

 Self-employment
 Industries
 Small scale units
 Home finance
 Consumer finance
 Personal finance
Some of the forward looking Co-operative banks have developed

sufficient core competencies to such an extent that they are able to challenge
state and private sector banks.
The exponential growth of Co-operative banks is attributed mainly

to their much better contacts with the local people, personal interaction with
customers, and their ability to catch the nerve of the local clientele. The total
deposits and lending of Co-operative banks are much more than the Old Private
Sector Banks and the New Private Sector Banks.
Historical background

National Minority Co-operative Credit Society Ltd was established in the

year 18/01/1997 under the leadership of shri Shri. Allabhaksha .M. Ronad
trusting the co-operative movement, a few enthusiastic people at business was
involved in establishing this bank with a small amount of capital
Let shri Shri. Allabhaksha .M. Ronad an was the founder of bank and
Smt. M.A.Ronad was director and also the president of the bank.
The bank was given permission to function by the co-operative
Department under the license NO: 23427/96-97 from 18-01-1997 since then the
bank has expanded its operations and many ferneries and by making many
traders as its members, it has been functioning successfully in this area.
The bank is located in the central area of badami city which is very
near to all the people of the city and its having a fine building which is very
comfortable for working its operation.
The bank has maintained in secular character by having members from

all communities and the bank has 5482 members in the financial year 2017. The
chairman and vice-chairman have been experienced in the field of banking.
They concentrated more on the recovery of loans granted to the members in
order to reduce the percentage of non-performing assets (NPA). Many small
traders expanded their field of activity by taking financial assistance from the
bank. Members customers who have taken the loan from this bank have now
become the ‘DEPOSITORD’ of the it has won.
Organization Profile

National Minority Co-operative Credit Society Ltd. Badami
Name of bank National Minority Co-operative Credit Society Ltd

Horapeti, Near Garadi mani, Main Road,Badami - 587
Address
201
Head Office Badami
Establishment Year 18/01/1997
Registration No 23427/96-97
Phone No 08357/220912
Audit Class "A"
Founder Shri. Allabhaksha .M. Ronad
Board of Director 12
President Smt. M.A.Ronad
General Manager Shri. L.H.Patan

Badami,Belur, Kerur, Gajendragada, Gudur and
Area Occupied
Ramdurga
No. of Branches 5
Types of Business Banking
Total Share Capital Rs. 24803900

Total Number of
53
Employees
Mission

To strive for socio-economic development of the district by providing

efficient financial services for agriculture and non agriculture activities based on
co-operative principal.
Vision
Their vision is to be a “word class Indian bank”. benchmarking themselves

against international standards and best practices in terms of supporting the
agriculture product offerings, technology, service levels, risk management and
audit and compliance. The business strategy emphasizes the following:
To increase our market share in India’s expanding banking and financial

services to agriculture by following a disciplined growth strategy and delivering
high quality customer service.
Objectives of the bank:
1. To encourage thrift help and co-operation among the members, associate

members, nominal members and depositors of the bank.
2. To provide required finances to priority sectors like agriculture, cottage
Industries and small scale industries
3. To borrow funds from members and non members and to be utilized for
granting loans to members and non members for useful purpose.
4. To arrange for the safe custody of valuable and documents.
5. To carry out instruction for periodic or collections, remittance etc of the
members and non members.
6. To prepare and finance projects to improve the economic condition of the
members particularly those belonging to weaker section of the society.
7. To extend financial and technical assistance to the unemployed to start
industry.
8. To create funds for the promotion of the operative education.
9. To act as an agent for the joint purpose of domestic and other requirement of
the members and non members.
Positive features of National Minority Co-operative Credit Society Ltd.
It is vey important to discuss how the bank attract to its customer’s to mobilized
the deposit.
The following points to discuss to attract the customer have to force their
deposits in co operative Bank Ltd.
1. The Bank has given extra 0.50% interests on deposits on senior citizen
customer.
2. The bank has give cash incentives to its member’s sons or daughters those
who are passed above 85% in S.S.L.C & P.U.C.
3. The bank has given locker facility to its customer.
4. The bank extends its transaction time 10:30 AM to 2:30 PM increase to
10:30 AM to 5:00 PM.
5. All branches are fully computerized to its customer.
Management Committee

Management committee of National Minority Co-operative Credit Society

Ltd bank includes 10 members.
President - 01
Vice president - 01
Directors - 08
Founder Allabhaksha .M. Ronad
Chairman Mrs. M .A. Ronad
Vice Chairman Mr. A .F. Nanear
Chief Executive Mr. L .H. Pattan
Director Mr. A .A. Nadaf
Director Mr. A.T. Barawali
Director Mr. S.A. Bilagi
Director Mr. M .S. Kaladagi
Director Mr. A .H. Kalifa
Director Mr. D .W. Jamadar
Director Mrs. C.R. Walikar
Director Mr. B .M. Sullada
Services profile

Deposit services Loans

Saving bank account Personnel
Current account Mid term
Recurring deposits Salary
Fixed deposits Overdraft /cash credit
Saving certificates Gold loans
Daily collection deposits Housing loans
Vehicle loans
Agriculture loans
Other services
Issuing of at per cheque at reasonable and concessional rates
Safe lockers
Purchase of DDs in public sector banks on behalf of customers
Money transfer
Bank operation
Cash
Clearing
Deposits
Over Draft
Loans and advances
Remittance
Guarantees
Locker

Interest rates
Interest on Deposits
General Senior
Days \ Years Days\ Years
People Citizen
15Days 29 Days 5% 5.5

30Days 45Days 6% 6.5
46 Days 90 Days 7% 7.5
91Days 90Days 8% 8.5
181 Days 180Days 9% 9.5
1(365)Years 1(365)Days 10% 10.5
2(731)years 2(730)Days 11% 11.5
3(1090)years 12% 12.5
Interest On Loans
Securities Loans 16%
Gold Loans 16%
Vehicle Loans 16%
Cash Credit Loan 16%
Secure Security Loans 18%

SWOT ANALYSIS:
Strengths:
 The bank is located in the heart of the city and has all the
infrastructure and facilities.
 The bank has modern facility with maximum capacity, brand loyalty
of consumers.
 A very little competition for its major co-operative bank in Badami.
 Diversified product range keeps the bank stable.
Weakness
 High cost of funds.
 Insufficient banking hours.
 Old fashioned ambience.
 Some of the branches not being fully computerized.
Opportunities:
 Good market share in Badami should tap other market dynamically.
 At present it has good position over funds.
Threats:
 There is a need for renovation of plans and policies.
 Government interference may reduce growth potential.
 Controlling the inflow and outflow of cash.
 To exercise cost control and reduction technique.

Level of organization:
 Top level management:

a) President
b) Board of directors
 Middle level management
a) General manager
b) Deputy general manager
c) Senior manager
d) Managers
e) Assistant manager
 Lower level management
a) Superintendents
b) Field officer
c) Supervisors
d) Typist
e) Computer operator
f) Attainders
g) Security guards

Business practices (different departments of the bank)
Departmental study:
National Minority Co-operative Credit Society Ltd is a service concern of

moderately medium size. We can see a function wise department. It facilitates
effective utilization of manpower and resources and it is a simple, economical
and reasonable organization pattern.
Departmentation is the process of groups the various activities into

separate units of department. A department is a district section of business
establishment concern with a particular group of activities of like nature. In
business units department is necessary for subdividing the activities and easy
reference.
Departmentation in National Minority Co-operative Credit Society Ltd is

done on the basis of function i.e. grouping of the activities in to major
functional departments like loans and advances, and accounts etc.
These departments are as follows:
1. Establishment and administration department.

2. Planning and development department.
3. Loan and advances department
4. Banking and accounts department.
5. Auditing and inspection department.
6. HR department

1. Establishment and administration department
This department is dealing with the maintaining records and service

books of all staff members, to issue transfer order to the employees, recruiting
the employees for the vacant posts, to insist and take necessary action against
misbehaving staff in the bank. To make a proper salary to all the employees in
the bank and providing all the financial benefits to all the staff members.
2. Planning and development department:
This department is dealing with all banking rules, planning for loan
advances target, and recovery of target of loans, planning for training of
recruited employees. It is also preparing final balance sheet of the bank and
annual report of the year and all register of co-operative bank meeting, apex
bank joint co-operative meeting are taken place.
In this department the manager is responsible for conducting survey

wherever necessary for the purpose of collecting data is required from time to
time. He is also responsible for formulation and implementation of the other
development agriculture and horticulture scheme. He has allocate the work to
staff members working in the department. And the any work entrusted by the
general manager, deputy manager & managing director. Usually in these
department future activities or planning and the developmental activities like the
new scheme to the customer and new provisions to them along with that, it must
be helpful to increase the profit margin of the bank.

3. Loans and advances department:
First branch receive the approaches from the customer and then it is
send to the main branch. The application received from the branch are
scrutinized the loan section and then it is submitted to the board meeting, loan
subcommittee meeting and if get sanctioned by the board then it is send to the
branch, and then it is given to the customer.
4. Accounts Department
Any progressive bank to keep its finance positioning accounts

department is responsible to prepares profit & loss accounts it also prepares
balance sheet to know its asset & liabilities. This mechanism act as barometer to
forecast whether the company is running at a profit or loss & if so they take the
necessary precautions if the bank is running under the loss or to increase its
profit of the bank. Along with that this department has to make the comparison
of its profit and loss of the previous year to the current year to know how much
increase or decrease it has made.
5. Auditing and Inspection Department:
National Minority Co-operative Credit Society Ltd audit wing is headed by

internal auditor. Auditing is vital for the company as it facilitates verifying of all
the books of accounts by trail balance; also company with requirements for
central excise & income tax purpose. After the auditor’s monitor everything
they give report which is helpful to the company.

6. HR department:
Recruitment:
Every organization requires the manpower to run the organization successfully.

Without the manpower the organization is nothing. So, every organization
knows kind of manpower is required and chooses the bests.
Recruitment is defined as “ a process of discover the sources of manpower to

meet the requirement of staffing schedule and to apply effective measure for
attracting the manpower in adequate number to facilities effective selection of
an efficient work force”.
So, in National Minority Co-operative Credit Society Ltd as per government

rules and regulations they are recruiting and discovering the sources of
manpower to meet the requirement.
Selection:
other human resource issues turn. In this fast moving work environment the
time available for new employees to adapt and develop is diminishing. They are
expected to become effective almost instantly, to perform and to move on.
After identifying the source of human resources, searching for prospective

employees and stimulating them to apply for jobs in the organization, the
management has to perform the function of selecting the right employees the
right time. The obvious guiding policy in selection is the intention to choose the
best qualified and suitable job candidate for each unfilled job. The objective of
the selection decision is to choose the individual who can most successfully
perform the job from the pool of qualified candidate.

1) Net Assets method

Formula = Net assets Available to Equity share holders
Number of Equity Share
Net Assets = Total assets – External Liabilities
National Co-operative Credit Society Limited. Badami

Calculation of value of net assets available to equity share holders
2015-16 2016-17 2017-18
Particulars Amount Amount Amount
Premises 681481 1653944 1653944
Vehicle Account 662625 725201 725201
Computers and Peripherals 989076 1114001 1196894
Investment (Non Trading) 82438176 92905754 139921062
Stock 2494288 2798138 2994621
Pigmy Machines 420000 508750 564146
Long term loans 259288530 321758991 372989149
Other Assets 1037158 1023918 3724514
Interest Receivable on Overdue 1071397 1443124 1492674
Cash in hand 7373326 8276700 9758661
Balance with other Banks 12711301 13878265 16217745
Total - A 369167358 446086786 551238611
Less Outside liabilities and preference share capital

Deposits and other accounts 336060070 403177731 505063786
Dividend Payable 686180 912347 1314401
Audit Fees Payable 175000 177500 175500
Interest Payable 2804008 3742007 2246275
Sundry Liabilities 346261 440822 586781
Total - B 340071519 408450407 509386743
Net Assets available to Equity Shareholders (C

29095839 37636379 41851868
= A - B)
No.of Share holders 160220 210896 248039

Value Per Share 181.60 178.46 168.73
Necessary notes
1. It is assumed that all the equity shares of the company are of the same
class and equally paid.

2. All the assets are taken at book value only as no information is given
about its market value.
3. The preliminary expenses and fictitious assets are not considered in total
value of assets.
2. Yield Method
Formula = Paid up Value per Share X Expected Rate of return / Normal

Rate of Return
Expected rate of Return = Profit Available to Equity Shareholders / Paid Up

Equity Share Capital X 100
Profit Available to Equity Share holders

Particulars 2015-16 2016-17 2017-18

Earnings Before Interest and Tax (EBIT) 3609058 4412345 4378653
Interest on Debenture 0 0 0
Less
Profit Before Tax 3609058 4412345 4378653
Income Tax 22800 17250 32500

Less
Profit After Tax 3586258 4395095 4346153

Transfer to Reserve 25% 896565 1098774 1086538
Less
2689694 3296321 3259615
Less Preferential Dividend 0 0 0
Amount Available to Equity Share holders 2689694 3296321 3259615

Paid up Equity Share Capital 16022000 21089600 16022000

Expected Rate of Return 16.79 15.63 20.34

Calculation of Expected rate of return
Year Profit Available to / Paid Up Equity Expected Rate of

Equity Share
Share Capital Return
holders
2014-15 2689694 16022000 16.79
2015-16 3296321 21089600 15.63
2016-17 3259615 16022000 20.34
Calculation of value per share under Yield method
Paid up value Expected Rate Normal rate Value Per

Year
Per share of Return of return Share
2014-15 100 16.79 10 167.88
2015-16 100 15.63 10 156.30
2016-17 100 20.34 10 203.45
Necessary notes
1. It is assumed that normal rate of return is considered 10% all over three
years.
2. It is assumed that all the equity shares of the company are of the same
class and equally paid.
3. The normal rate of dividend is 10% so normal rate of dividend is
considered as normal rate of return
3. Fair Value Method
Formula = Value Per share as per Net assets Method + Value Per share as
per

Yield Method
Value Per Share Value Per Share

Fair Value
Year as per Net assets as per Yield Total
Method
Method Method
2015-16 181.60 167.88 349.47 174.74
2016-17 178.46 156.30 334.76 167.38
2017-18 168.73 203.45 372.18 186.1
Net Assets Method

Table shows value per share under net assets method

Net assets available

Year to Equity No.of Equity Shares Value Per Share
Shareholders
2015-16 29095839 160220 181.60

2016-17 37636379 210896 178.46
2017-18 41851868 248039 168.73
Net Assets Method

185.00
181.60
180.00 178.46
175.00
170.00 168.73
165.00
160.00
2015-16 2016-17 2017-18
Interpretation -:
The above graph shows the value per share according to net assets method over
period of 3 years. The value per share is showing decreasing trend from 2015-
16 to 2017-18 because the value of net assets method is declined. In the year
2015-16 – 181.60, 2016-17 – 178.46 and in 2017-18 – 168.73 per share.
Yield Method
Table shows value per share under Yield method
Paid up value Expected Rate Normal rate of Value Per

Year
Per share of Return return Share
2015-16 100 16.79 10 167.88
2016-17 100 15.63 10 156.30
2017-18 100 20.34 10 203.45
Yield Method
203.45
250.00
167.88
156.30
200.00
150.00
100.00
50.00
0.00
2015-16 2016-17 2017-18
Interpretation -:
The above graph shows the value per share according to yield method over
period of 3 years. The value per share is showing fluctuating from 2015-16 to
2017-18. The values per shares are 167.88, 156.30 and 203.45 respectively from
2015-16 to 2017-18.
Fair value method

Table shows value per share under fair value method
Year Value Per Share Value Per Share Total Fair Value

as per Net assets as per Yield Method

Method Method (Total / 2)
2015-16 181.60 167.88 349.47 174.74
2016-17 178.46 156.30 334.76 167.38
2017-18 168.73 203.45 372.2 186.1
Fair Value Method
190.00 186.09
185.00
180.00 174.74
175.00
167.38
170.00
165.00
160.00
155.00
2015-16 2016-17 2017-18
Interpretation -:
The above graph shows the value per share according to fair value method over
period of 3 years. The values per share are showing fluctuating from 2015-16 to
2017-18. The values per shares are 174.74, 167.38 and 186.1 respectively from
2015-16 to 2017-18.
Comparison of value per shares among different methods of valuation of

shares.

Year Net assets Method Yield Method Fair value method
2015-16 181.60 167.88 174.74
2016-17 178.46 156.30 167.38
2017-18 168.73 203.45 186.09
250.00
200.00
150.00
203.45
186.09
181.60
100.00
178.46
174.74
168.73
167.88
167.38
156.30
50.00
0.00
Net assets Method Yield Method Fair value method
Interpretation -:
The above graph shows the value per share of all methods of valuation of shares
over a period of 3 years. Comparing to the net assets, yield and fair value
method all are showing fluctuated amount of values of shares.
Findings

1. The value per share of net assets method is going to decrease in trend
over the three years. In the year 2015-16 – 181.60, 2015-16 – 178.46 and
2017-18 – 168.73.
2. In yield method the value per share of three years are fluctuating from
2015-16 to 2017-18. i.e. 167.88, 156.30 and 203.45 respectively.
3. The value per share according to fair value method is also fluctuating, the
vale per shares according to this method are 174.74, 167.38 and 186.10.
4. When the comparison made among the different methods of valuation of

shares, the net assets method is higher than the yield and fair value
method.
5. The bank does not take any loans and advances in any financial
institution or banking sector.
6. It is found that the bank has provide the loans and advances to its
customers based on the collecting the deposits of the money from the
public. It has more amounts of deposits.
Suggestions

1. The bank has the higher value of per share in net assets method. So bank
has to maintain the same level of net assets available to equity
shareholders.
2. The yield method has shown less value price per share comparing to all
other methods. So the bank has to increase the normal rate of return to
existing shareholders, it may results in increase the value price per share
in this method.
3. If the firm fallows fair value method, the firm has to take necessary steps
in order to increase the value per share according to fair value method.
4. The bank has to fallow net assets method of valuation of shares. Because
it has the higher price per share comparing to yield and fair value method.
5. It suggests that the bank has to take loans and advances from outside
which results in increase the capital of the firm and to increase the market
value per share of the firm.
6. It suggests that when the firm is the levered firm it helps to increase the
market value of the equity per share.
Conclusion:-

It has been an excellent opportunities for me to carry out the study valuation of
shares at National Minority Credit Co – operative Society. It has helped to a
great extent to have an insight in to practical realities of the subject.
The main intention of the study is project work has to understand how the value
per shares is determined in the private ltd company because these shares are not
mentioned on the stock exchange. In such cases, if their shares are to be
transferred, the value of these share are to be ascertained. The other objectives
of this report were to know the methods of valuation shares. Keeping these
objectives in mind necessary calculations have been made & presented in the
charts.
The company’s net assets method is better than yield and fair value method
except in the year 2017 -18. Because the net assets available to equity
shareholders are higher than profit available to equity shareholders. So I
concluded that the firm has to choose the net assets method to sell the share to
the public. It may results in increase the share capital of the company.
Bibliography

1. Corporate accounting :- a) M.B.Kadkol
b) Dr.T.N.Godi
2. Advanced Accounting:- a) S.N.Maheshwari
b) Jain and Narang
3. Web Site
www.google.com

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A Study on Valuation of Shares

Introduction of the study

In modern days the valuation of shares plays an important role in Corporate

In the ordinary course of action, the shares of most of the

Objectives of the Study

1. To study different types of valuation of shares.

Bhandari and Rathi College. Guledgudd Page 1

Scope of the study

Need for the study

Hence the valuation of shares may be done for two reasons.

1) Where there is no market price as in the case of proprietary company.

Bhandari and Rathi College. Guledgudd Page 2

Methodology is nothing but a plan or a strategy of the investigation

The information required is collected through the following sources.

Questioning the executives of the company.

Limitations of the study

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Concept of Valuation of Shares:

2. Reconstruction of a Company: The valuation of shares is required to make

Bhandari and Rathi College. Guledgudd Page 4

4. Nationalisation of Company: When the company is nationalised the share

6. For Taking Loan against Security of Shares: When the loan is to be

7. Determining the Net Assets of the Company: The Investment or finance

Factors Affecting Valuation of Shares:

3. Dividend Policy: The companies which distribute steady dividend command

Bhandari and Rathi College. Guledgudd Page 5

4. Corporate Governance: Companies which have good corporate governance

5. Reputation of Management: Corporate have efficient management

8. Government Policy: Government offer incentives, tax holidays to some

9. Composition of the Customers: If the product of the company is consumed

Bhandari and Rathi College. Guledgudd Page 6

Methods of Valuation of Shares

1. Net assets Method or Intrinsic value method or Breakup value method

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Intrinsic Value Method

1. While computing the amount of assets, following points must be

Bhandari and Rathi College. Guledgudd Page 8

3. All Fictitious assets appearing under the head Miscellaneous \Expenditure

While calculating the liabilities, following points may be considered:

The net value of assets, determined so has to be divided by number of equity

Bhandari and Rathi College. Guledgudd Page 9

Therefore a net asset available to equity shareholders is calculated as fallows.

In the Books of …………………………. Ltd

Yield or Market Value Method of Valuation of Shares

Bhandari and Rathi College. Guledgudd Page 10

available. Since the business enterprise is assumed to be a going concern,

(a) Rate of earning and

(b) Rate of dividend. In other words,

Yield may be earning yield and dividend yield.

Bhandari and Rathi College. Guledgudd Page 11

Earning Capitalization Method This method considers the earning potential

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Expected rate of earning = (Profit after tax/paid up value of equity share)

Expected rate of dividend = (profit available for dividend/paid up equity

3. Earning Capacity Method of Valuation Of Shares

Step 1: To find out the profit available for dividend

(Profit available for equity dividend/Normal rate of return) X 100

Bhandari and Rathi College. Guledgudd Page 13

Distinction between Net assets method and Yield method

Distinction Yield Method

INTRODUCTION TO CO-OPERATIVE BANKING:

Bhandari and Rathi College. Guledgudd Page 14

Co-operative bank, in a nutshell, provides financial assistance to the