Valuation of shares

Category: Education

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methods of valuation of shares


Presentation Transcript

Valuation of shares:

Valuation of shares

Methods of valuation:

Methods of valuation Net assets method Earnings capitalization method Dividend capitalization method PE model Discounted cash flows method Fair value method

Net assets method:

Net assets method

PowerPoint Presentation:

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

PowerPoint Presentation:

Share value = NA/ No. of equity shares Applied for companies - Under Winding Up - Ongoing companies that are capital intensive

Earnings capitalization method:

Earnings capitalization method

PowerPoint Presentation:

Under this method Earnings are capitalized with NRR to arrive at the value of share EPS NRR NRR – Industry rate

Application of this method:

Application 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

Dividend capitalization method:

Dividend capitalization method

PowerPoint Presentation:

Focus is on capitalization of dividends DPS NRR DPS – Dividend Per Share NRR – expected by shareholders

Application of method:

Application of method Small block of shares Current investors

Price earning ratio model:

Price earning ratio model

PowerPoint Presentation:

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

Application of this method:

Application of this method valuing listed companies companies which are highly active in stock market Therefore this method is applicable only to public companies shares.

Discounted cash flows method:

Discounted cash flows method

PowerPoint Presentation:

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:

Fair value method

PowerPoint Presentation:

NA + EARNINGS 2 Where capital intensive & earnings also play an important role VALUE OF SHARE

Special points:

Special 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

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