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SUMMARY OF VALUATION OF SHARES

SUMMARY OF VALUATION OF SHARES :

A. Net Asset Value Method 

Step 1 : Compute Net Operating Asset (Refer Capital Employed Computation under Valuation of Goodwill).

Step 2 : Add Value of Goodwill and Non operating Assets if any (eg. Investments)

Step 3 : Divide the aggregate of Step 1 & 2 by the number of shares outstanding as at Valuation date.

B. Yield based
The Various Methods under this are Dividend Capitalisation Method Earnings Capitalisation Method & Productivity Factor Method.

1. Dividend Capitalisation Method

Step 1 : Ascertain Dividend per share

Step 2 : Ascertain Normal rate of return.

Step 3 : Capitalise the Dividend per share at above normal rate of return to arrive at value per share.

Value per share =   DPS / NRR x100

(Where DPS = Dividend Per Share
NRR = Normal Rate of Return)

2. Earnings Capitalisation Method
Step 1 : Compute Earnings Per Share (EPS).
Step 2 : Ascertain Normal Rate of Return (NRR).
Step 3 : Value per share is arrived by capitalising at NRR.

Value per share = EPS X100/ NRR

3. Productivity Factor Method
Step 1 : Computation of Productivity factor
(a) Compute weighted average net worth of a given period.
(b) Compute weighted average Profit After Tax (PAT) for the same period.
(c) Compute Productivity factor

Production Factor =   Weighted Average PAT x 100/ Weighted Average Net Worth

Step 2 : Ascertain Net worth on the valuation date.
Step 3 : Compute Future Maintainable Profit (FMP).
Future Maintenance Profit = Net Worth x Productivity Factor.
Step 4 : Ascertain Adjusted FMP ie., Future Maintenance Profit as per Step 3 adjusted for changes in business.
(eg. Change of tax rate).
Step 5 : Ascertain Normal rate of return.
Step 6 : Capitalise Adjusted FMP at NRR to arrive at value of business.
Step 7 : Add : Non operating Assets (eg. Investments) to above value of business.
Less : Preference Share Capital (if any)
Step 8 : Value per share = (Step 6 + Step 7) / Number of Shares

4. Market Price Method
Step 1 : Ascertain Earnings Per Share.
Step 2 : Ascertain from published sources the Price Earnings Multiples for similar size Company operating in the same industry.
Step 3 : Value per share = EPS X PE Ratio.

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