VALUATION OF SHARES

By

M ETHODS

OF VALUATION

Net assets method

Earnings capitalization method
Dividend capitalization method
PE model
Discounted cash flows method
Fair value method

N ET

ASSETS METHOD

 Also called as Intrinsic value method

or Assess backing method
Non Trade investments are also
considered
Preference share capital is not
considered
All other calculation is same as capital
employed in Goodwill valuation

Share value = NA/ No. of equity shares

Applied for companies

- Under Winding Up
- Ongoing companies that are capital
intensive

E ARNINGS CAPITALIZATION
METHOD

Under this method Earnings are capitalized with NRR

to arrive at the value of share

EPS
NRR

NRR Industry rate

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

D IVIDEND CAPITALIZATION
METHOD

Focus is on capitalization of dividends

DPS
NRR

DPS Dividend Per Share

NRR expected by shareholders

A PPLICATION

OF METHOD

Small block of shares

Current investors

P RICE

EARNING RATIO MODEL

MV
PE =
EPS

MV = PE RATIO * EPS
PE ratio explains how many times earnings
per share able to recover the investment

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.

D ISCOUNTED CASH FLOWS

METHOD

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

FAIR

VALUE METHOD

VALUE
OF
SHARE

NA + EARNINGS
2

Where capital intensive & earnings also play an

important role

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

T HANK Y OU

By