Valuation of shares

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Valuation Of Shares
Earning Capitalization
Method (ECM)
Dividend Capitalization
Method
Fair Value
Method
Fair Value = Intrinsic Value + ECM
2

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Calculation Of Value on Intrinsic Value Basis
Also Known as :
•Intrinsic Value
•Net Asset Value
•Break up Value
•Net Worth Per Share
•Book Value Per Share

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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 ======

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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

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1.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 tax
Earning Rate = x
100
Share Capital
Use : Where large no. of shares is to be valued ( Big Lots)

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

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3. Fair Value Method
Fair Value = Intrinsic Value + ECM
2
This method is to be used for valuation of
shares for controlling Interest.

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How to Calculate Normal Rate of Return
NRR of Industry is taken as Base ---------

Add: Risk Factor ½ % Assumed ---------
( Risk Premium for each risk)
Ke of Companies NRR
Risk Factors:
9.Dividend Track Record
10.Dividend Coverage Ratio
11.Asset Backing Ratio
12.Debt Equity / Capital Gearing Ratio

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Equity Dividend Coverage Ratio =
PAT – Preference Dividend with CDT

Equity Dividend
Preference Dividend Coverage Ratio =
PAT

Preference Dividend

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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

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4. Valuation of Business
It can be on the basis of:
2.Shares
3.Cash Flows
•
Value as per Share = Number of × Value of
Shares Shares

Value per share can be : MP , Intrinsic Value , Fair Value , ECM , DCM

13.Value of Business on Cash Flow Basis =
Cash flow of Business × Discount Factor