Valuation of Shares

Corporate and regulatory services

Valuation of Shares

Need for valuation:

  1. At the time of amalgamation.
  2. When loan is granted on the security of shares.
  3. When preference shares or debentures are converted into equity shares.
  4. When equity shareholders are to be compensated on acquisition of their shares by the government under a scheme of nationalization.

 

Factors affecting Valuation of Shares:

 

  • Nature of the business
  • Demand and supply for shares
  • Govt. policy
  • Past performance of the company
  • Growth prospectus of the company
  • The management of the company
  • The economic climate
  • Accumulated reserves
  • Prospects of bonus or rights issue
  • Dividend declared etc.

 

Methods for valuation

 

  • Net assets basis (or intrinsic value) method
  • Yield basis method
  • Dual (or fair value) method



Valuation Of Shares Of Private Limited Company

 

1.Valuation of private equity share is generally subject to private understanding between parties.

  1. In valuation of PVT. Co. Equity share, any provision related to Valuation or transfer of shares as per AOA (Article of Association) must be followed.
  2. In absence of any any provision in AOA, permission from other members should be obtained, and shares should be first offered to them for allotment.
  3. While calculating Value of equity shares of private company generally Net asset value method or profit earning capacity method are as followed:

 

 

  • Net Asset Value (NAV) Method: All assets are taken at book value (excluding fictitious assets and goodwill) and reduced by Net liability, then value derived is divided by number of shares to get market Value per share.
  • Earning Capacity Method: Under this method average profit of past few years is taken and adjustment is made for any abnormal transactions occurred in those years, and then considering future growth prospect.
    FMP (future maintainable profit) arrived is divided by Number of shares to get Earning Per Share (EPS). On multiplication of EPS with P/E ratio we get value of market value per share.

 

NOTEMarket Price with NPV + Market Price With Earning Capacity
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Valuation Of Shares And Business

 

Valuation is not a objective exercise. Obtaining information Management Discussion and Industry Overview Data analysis and review Selection of method Applying Method Conducting sensitivities on assumptions Assigning Weights Recommendation Reporting Any preconceptions and biases that an analyst brings to the process will find their way into the value.

 

Shares Valuation Service in India

 

In India need for a business appraisal or share valuation may arise in many different commercial circumstances, including, the Issue and transfer of shares to Non residents  Retirement of owners and disposal to next generation of management Pre-flotation of minority shareholder from employment in the business. Many instances of minority shareholders delaying the merger process by challenging valuation Balance needs to be achieved through transparency, fairness and best governance practices