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

2. 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

3. 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 ======

4. Note: Sundry Asset and Liability are after : Revaluation Rectification
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

5. 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)

6. 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.

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

9. Equity Dividend Coverage Ratio = PAT – Preference Dividend with CDT
Preference Dividend Coverage Ratio =
PAT
Preference Dividend

10. Intrinsic Value Per Share Paid up value per Share
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

11. 4. Valuation of Business It can be on the basis of: Shares Cash Flows
Value as per Share = Number of × Value of
Shares Shares
Value per share can be : MP , Intrinsic Value , Fair Value , ECM , DCM
Value of Business on Cash Flow Basis =
Cash flow of Business × Discount Factor