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ORCAJADA, ALLIRA ANN D.

FINMAN
CBET-01-301A

Methods of Stock Valuation

A. Non-discounted Techniques
- based on financial statements and fundamental
information.
- Takes into consideration the financial performance of
the company or the current book value of its
shareholders’ equity.
- Utilize market information to the net income of the
firm being valued.

1. Book Value or Net Asset Value Approach


- Utilizes the total shareholders’ equity portion of the
financial statements.
- Net Asset Value Per Share or the Book Value Per
Share – the amount that would be paid on each
share assuming that the company is liquidated.
- Net Asset Value – fund (mutual funds)
- Book Value – for different types of businesses.

FORMULA:

Book Value or Net Asset Value per Share


Total Shareholders’ Equity (or Total Assets – Total Liabilities)
= Number of outstanding shares

Book Value or Net Asset Value per Share


Total Shareholders’ Equity – Total equity attributable to preference shares
=
Number of outstanding common shares
ORCAJADA, ALLIRA ANN D. FINMAN
CBET-01-301A

- The valuation approach is against the Going


Concern Principle, wherein we assume that the
company will continue operations for an indefinite
period of time and under no circumstances that it
shall liquidate in the near future.

Illustrative problem:
SEC Company has the following information derived from its most
recent audited financial statements:
- Total Assets = P20,000,000,000
- Total Liabilities = P10,000,000,000
- Total Shareholders’ Equity = P10,000,000,000
- No. of ordinary shares issued and outstanding =
P1,000,000,000 shares

To determine the NAVPS or BVPS:


NAVPS or BVPS
Total Shareholders’ Equity
=
No. of ordinary shares issued and outstanding

P10,000,000,000
=
1,000,000,000

= P10 per share


ORCAJADA, ALLIRA ANN D. FINMAN
CBET-01-301A

If the company had another class of stock such as preferred


shares amounting to 600,000,000 shares with a total equity of
P2,500,000,000, then the equation will turn out…

NAVPS or BVPS
Total Shareholders’ Equity – Total equity attributed to preference shares
= No. of ordinary shares issued and outstanding

P10,000,000,000 – P2,500,000,000
=
1,000,000,000

= P7.50 per share