2. M ETHODS OF VALUATION
ο Net assets method
ο Earnings
capitalization method
ο Dividend
capitalization method
ο PE model
ο Discounted cash
flows method
4. οΌ Al so cal l ed as I nt r i nsi c
val ue m hod or Assess backi ng
et
m hod
et
οΌ N Tr ade i nvest m s ar e
on ent
al so consi der ed
οΌ Pr ef er ence shar e capi t al i s
not consi der ed
οΌ Al l ot her cal cul at i on i s sam e
as capi t al em oyed i n G
pl oodw l l
i
val uat i on
5. Share value = NA/ No. of equity shares
Applied for companies
- Under Winding Up
- Ongoing companies that are capital
intensive
7. Under this method Earnings are capitalized with NRR
to arrive at the value of share
EPS
NRR
NRR β Industry rate
8. A PPLICATION OF THIS
METHOD
ο Valuation of large block of shares
ο Low capital intensive companies
οSometimes Assets may not provide correct
base for valuation of shares
ο Long term Investors
13. MV
PE =
EPS
MV = PE RATIO * EPS
PE ratio explains how many times earnings
per share able to recover the investment
14. A PPLICATION OF THIS
METHOD
οΌ valuing listed companies
οΌ companies which are highly active in
stock market
Therefore this method is applicable only
to public companies shares.
16. οFuture earning cash flows are
discounted to arrive at discounted cash
flows
οWhere net assets or earnings
capitalization is not able to value
correctly then we have to go for DCF.
οfocus is on future profits that arise
because of synergy
18. VALUE NA + EARNINGS
OF 2
SHARE
Where capital intensive & earnings also play an
important role
19. S PECIAL POINTS
ο when there is Calls β in β arrears ο add it to share
capital assuming Notionally received. After calculating
value of fully paid shares reduce Calls β in β arrears to
arrive at value of partly paid shares
ο No. of shares should be Equivalent number of shares
(Fully paid up)
ο Ex dividend basis β proposed dividend shall be
deducted from net assets
ο Cum dividend β proposed dividend should not be
deducted from net assets