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PRESENTATION BYMAYUR KR. MORE B.COM(H) 2ND YEAR K65 ROLL.

504

1. 2. 3. 4. 5.

MEANING OF VALUATION OF SHARES NECCESITY OF VALUATION OF SHARES BUT WHAT IS THEN THE STOCK EXCHANGE FOR?????? FACTORS AFFECTING VALUATION OF SHARES FOUR DIFFERENT METHODS TO VALUE SHARES

SHARE-Sec

2(46) of the companies act 1956 defines a share as share means share in the share capital of a company and includes stock, except where a distinction between stock and shares is expressed or implied. VALUATION-When I got an asset and another person is interested in acquiring that asset from me then the asset has got some value..isnt it??

STATUTORY

REASONS(a)assessment under wealth tax (b)assessment under gift tax (c)for paying court fees COMMERCIAL REASONS(a)Formulation of a scheme of amalgamation (b)Purchase and sale of shares of a private co. (c)Raising a loan on security of shares,etc.

The

stock exchange is more of a sentiment-driven market and is less based on actual net worth or earnings capacity of the shares of a companys business. Moreover not all shares are listed on a stock exchange. NOT EVERYONE GETS TO BE THAT LUCKY!!!!

Earnings

or the profitability and stability of

profits The yield or return from similar companies(normal rate) Dividend declared Net assets position Capital employed

1. 2. 3. 4.

NET ASSETS METHOD DIVIDEND YIELD METHOD EARNINGS CAPACITY METHOD FAIR VALUE METHOD

THIS

METHOD ATTEMPTS TO SHOW HOW MUCH ASSET IS BACKING AGAINST EACH SHARE ASSETS BACKING SHALL PROVIDE SAFETY TO HIS CAPITAL FUNDS FURTHERMORE ASSETS VALUE ALSO PROVIDES GUIDELINES FOR VALUATION OF SHARES OF COMPANIES WHOSE FUTURE PROFITS ARE INDETERMINABLE.

ASSETS(including goodwill ,excluding fictitious

assets)

LESS:ALL OUTSIDE LIABILITIES NET ASSETS LESS:CLAIMS OF PREFERENCE SHAREHOLDERS AMT. AVAILABLE TO EQUITY SHAREHOLDERS/ NO. OF EQUITY SHARES =VALUE OF A EQUITY SHARE

THIS

METHOD IS USED BY SMALL INVESTORS The holder of a small no. of shares can depend only on dividend that the directors may choose to declare Henceforth he is primarily interested in the return on his investments and the price that he would pay for shares would depend upon the amount of dividend he expects.

VALUE

PER EQUITY SHARE=

Rate of dividend declared *paid-up value of share Normal rate of dividend

NOTE NORMAL RATE OF DIVIDEND is the rate prevailing in the industry The investor would be willing to pay a higher price if he expects a higher dividend than the normal trend.

An

investor who intends to acquire controlling stake in a company would base his valuation not on the dividend declared but on the earnings of a company Better managed companies prefering declaring minimal dividend and having more of retained earnings.

VALUE

OF A EQUITY SHARE=
* paid up value of a share

Rate of earnings Normal rate of return

NOTE Rate of earnings is calculated as underTotal actual profits earned Capital employed * 100

WHY

THIS METHOD??

There is a strong feeling among the accountants that neither the assets method nor the earnings method is a independently a correct method to value shares. The suggestion is that valuation of shares be done by combining both these methods . Equal weightage is given to both values

It

is a very simple method

Value per share= value as per earnings basis + value as per net assets 2

Thus it is a simple average of the two values giving equal consideration to1.the actual assets backing to the capital ensuring that the capital is safe in the hands of the business 2.the future yield from the shares to be expected is based on the past records is also given due consideration.

THANK YOU.