Valuation of Shares

Valuation Of Shares

Earning Capitalization Method (ECM)

Dividend Capitalization Method Fair Value MethodFair Value = Intrinsic Value + ECM 2

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Calculation Of Value on Intrinsic Value BasisAlso Known as :

Intrinsic Value Net Asset ValueBreak up ValueNet Worth Per ShareBook Value Per Share


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 ======


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


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 taxEarning Rate = x 100 Share Capital

Use : Where large no. of shares is to be valued ( Big Lots)


2. Dividend Capitalization Method Dividend Rate x Paid up share cap per shareNormal 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.


3. Fair Value Method

Fair Value = Intrinsic Value + ECM 2

This method is to be used for valuation of shares for controlling Interest.


How to Calculate Normal Rate of Return NRR of Industry is taken as Base --------- Add: Risk Factor % Assumed --------- ( Risk Premium for each risk)

Ke of Companies NRR

Risk Factors:Dividend Track RecordDividend Coverage RatioAsset Backing RatioDebt Equity / Capital Gearing Ratio


Equity Dividend Coverage Ratio =

PAT Preference Dividend with CDT Equity Dividend

Preference Dividend Coverage Ratio =

PAT Preference Dividend


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


4. Valuation of BusinessIt can be on the basis of:SharesCash 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


Valuation of Shares

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