Presentation on theme: "Valuation Of Shares Dividend Capitalization Fair Value Method"— Presentation transcript:
1 Valuation Of Shares Dividend Capitalization Fair Value Method Earning CapitalizationMethod (ECM)Dividend CapitalizationMethodFair Value MethodFair Value = Intrinsic Value + ECM2
2 Calculation Of Value on Intrinsic Value Basis Also Known as :Intrinsic ValueNet Asset ValueBreak up ValueNet Worth Per ShareBook Value Per Share
3 Valuation of Intrinsic Value : Sundry AssetsLess: Sundry LiabilityAdd: Goodwill ( Revalued)Add: Non Trade InvestmentLess: Preference Share Capital andDividend in ArrearAdd: Notional CallsNet Asset For ESH ======Divided By No. of SharesIntrinsic Value ======
4 Note: Sundry Asset and Liability are after : Revaluation Rectification Note: Goodwill will always be calculated for the purpose of Intrinsic ValueNote: Sundry Asset and Liability are after :RevaluationRectificationNew Policy etc.Note: Always Calculate Intrinsic Value on Ex Dividend Basis.Intrinsic Value = Int. Value Div PerCum Dividend Ex Dividend Share
5 Earning Yield Method / Earning Capitalization Method / Yield Method = Earning Rate × Paid Up Share Capital Per ShareNRRFuture Marketable Non Trade Inv.Profit Income Net of taxEarning Rate = x 100Share CapitalUse : Where large no. of shares is to be valued ( Big Lots)
6 2. Dividend Capitalization Method Dividend Rate x Paid up share cap per shareNormal Rate of returnDividend Rate is rate of Dividend Company is expected to pay.Normal Dividend Rate is NRR.This method is applied for Small Lot of shares.
7 3. Fair Value Method Fair Value = Intrinsic Value + ECM 2 This method is to be used for valuation of shares for controlling Interest.
8 How to Calculate Normal Rate of Return NRR of Industry is taken as BaseAdd: Risk Factor ½ % Assumed( Risk Premium for each risk)Ke of Companies NRRRisk Factors:Dividend Track RecordDividend Coverage RatioAsset Backing RatioDebt Equity / Capital Gearing Ratio
9 Equity Dividend Coverage Ratio = PAT – Preference Dividend with CDT Preference Dividend Coverage Ratio =PATPreference Dividend
10 Intrinsic Value Per Share Paid up value per Share Asset Backing Ratio =Intrinsic Value Per SharePaid up value per ShareCapital Gearing Ration =Debt + Preference Share HolderEquity – Losses – Preference Share HolderDebt Equity =DebtEquity
11 4. Valuation of Business It can be on the basis of: Shares Cash Flows Value as per Share = Number of × Value ofShares SharesValue per share can be : MP , Intrinsic Value , Fair Value , ECM , DCMValue of Business on Cash Flow Basis =Cash flow of Business × Discount Factor