Module 1 valuation of shares copy

Valuation of Equity shares for graduate students

1. Valuation of SHARES MODULE 1

2. TYPES OF VALUES OF SHARES

3. Meaning of Intrinsic value of company The  intrinsic value  is the actual  value  of a company or an asset based on an underlying perception of its true  value  including all aspects of the business, in terms of both tangible and intangible factors. This  value  may or may not be the same as the current market  value .

4. Need for valuation of shares

5. MEANING OF VALUATION OF SHARES Valuation of shares means the ascertainment of the value of shares which is independent of the price of shares quoted in the share market.

6. FACTORS AFFECTING VALUE OF SHARES

7. METHODS OF VALUATION OF SHARES Assets backing method Earning Yield Rate Of Return Dividend Yield Method Fair Value Price Earning Ratio

8. 1. Net Assets/Intrinsic Value/Break-up Value/Assets Backing Value Method Net assets backing method is the intrinsic value of the shares. It is calculated on the basis of net assets of the company. While calculating net assets it has been presumed that the company is liquidated .

9. ADVANTAGES OF ASSETS BACKING METHOD

10. DISADVANTAGES OF ASSETS BACKING METHOD

11. PROFORMA FOR VALUATION OF SHARES (NET ASSETS METHOD) PARTICULARS DETAILS AMOUNT Goodwill Investment (market value) Other assets TOTAL ASSETS (less) debenture accounts payable other liabilities TOTAL NET ASSETS (less) paid up value of preference share NET ASSETS AVAILABLE FOR EQUITY SHARE XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX

12. EX-DIVIDEND & CUM-DIVIDEND- INTRODUCTION EX-DIVIDEND = WITHOUT DIVIDEND CUM-DIVIDEND = WITH DIVIDEND ANNOUNCEMENT DATE EX-DIV DATE RECORD DATE PAYMENT DATE ANNOUNCEMENT DATE - The date when company announces that it is going to provide dividend RECORD DATE - The date when company shows the list of investors who have bought the shares of company. EX-DIVIDEND DATE – On the Ex-dividend date, the shareholder will not get any dividend for its share. PAYMENT DATE – The date on which dividend is paid to shareholders. SETTLEMENT PERIOD T+2 CUM - DIVIDEND EX-DIVIDEND

13. EX-DIVIDEND VALUE AND CUM-DIVIDEND VALUE OF EQUITY SHARE According to Net Asset method, when proposed dividend is considered as an item of third party liability and is deducted from total assets in order to ascertain net assets. The value of share based on such net assets is known as ex-dividend value of share. When proposed dividend is not considered as an item of third party liability and is not deducted from total assets to determine net assets, value of share based on such net assets is called cum-dividend value of share

14. B. Yield or Market Value method - Overview The word yield means earning of a firm in relation to investments. It means Availability of Profits per Equity Share. Based on Going Concern Concept. Types- 1. Earning yield method 2. Dividend yield method. Earning Yield Method- a. On the basis of expected rate of return b. On the basis of capitalisation of Profit. Dividend Yield Method – a. On the basis of Average rate of dividend. b. On the basis of Normal Rate of return

15. ATTENTION – IMPORTANT POINTS 1. where information is given regarding Earning/Profits of the company along with normal rate of return , Earning Yield Method should be applied. 2. where information is given regarding Rate of Dividend of the company along with normal rate of return , Dividend Yield Method should be applied.

16. PRICE EARNING RATIO FORMULA TO CALCULATE PE Ratio PRICE EARNING RATIO = MARKET PRICE EARNING PER SHARE

17. Valuation of shares before and after issuing Bonus Shares 2:1 bonus share Total shares = 10 mil + 20 mil = 30 million Total profit (in year 2016) = 60 million

18. FORMULA (value of shares before bonus issue) Value of share = Net assets available to Equity Shareholders No. of Equity shares before bonus issue FORMULA (value of shares after bonus issue) Value of share = Net assets available to Equity Shareholders No. of Equity shares after bonus issue Valuation of shares before and after issuing Bonus Shares- Methods