Share and Stock Valuation

Interest & Bond Valuation

Agenda for today…

 Introduction to Shares and related terms

 Stock valuation
 Interest
 What are Bonds and different types of
Bonds
 Bond valuation
Savings & Investments

Income – Expenses =
Savings
Savings & Investments
1. Piggy bank / Gold /etc --- No Returns
Savings & Investments
1. Piggy bank / Gold /etc --- No Returns
2. Savings Bank – SB A/c --- No Returns
Savings & Investments
1. Piggy bank / Gold /etc --- No Returns
2. Savings Bank – SB A/c --- No Returns
3. Fixed Deposit --- Inflation eating into the
returns
Returns
2. Savings Bank – SB A/c --- No Returns
3. Fixed Deposit --- Inflation eating into the
returns
4. Bonds – Govt. Bonds / Corporate
bonds /Debentures --- 8-10% better
than FD

Earnings are going to be in the form of Interest

1. Piggy bank / Gold /etc --- No Returns
2. Savings Bank – SB A/c --- No Returns
3. Fixed Deposit --- Inflation eating into the
returns
4. Bonds – Govt. Bonds / Corporate
bonds /Debentures --- 8-10% better
than FD

Earnings are going to be in the form of Interest

5. Equity – Shares / MF ----
--- Earnings in the form of Dividend and
Capital Appriciation --- Wealth Creation
2. Savings Bank – SB A/c --- No Returns
3. Fixed Deposit --- Inflation eating into the
returns
4. Bonds – Govt. Bonds / Corporate
bonds /Debentures --- 7-8% better than
FD

Earnings are going to be in the form of Interest

5. Equity – Shares / MF ---- Wealth Creation

--- Earnings in the form of Dividend and
Capital Appriciation --- Wealth Creation
Share Capital …
Cap of an Entrepreneur
--- Think like a businessman
Coffee seller – deciding to take the next leap
Bank Loan to turn the cart into a store
Big boom…
Generate Share Capital
Basic Terms
Authorized Share Capital 100 Cr.
( Maximum -- He would want to raise )
Basic Terms
Authorized Share Capital 100 Cr.
Paid Up Share Capital …. 10Cr. 10,00,00,000
(Right now … whatever is sufficient )
Basic Terms
Authorized Share Capital 100 Cr.
Paid Up Share Capital …. 10Cr. 10,00,00,000
No. of Shares 1,00,000
Par Value of Share (Face Value) Rs. 1000

1 lac shares X Rs. 1000 = 10Cr 10,00,00,000

Basic Terms
Authorized Share Capital 100 Cr.
Paid Up Share Capital …. 10Cr. 10,00,00,000
No. of Shares 1,00,000
Par Value of Share (Face Value) Rs. 1000

1 lac shares X Rs. 1000 = 10Cr 10,00,00,000

No. of Share holders (any no.)

Voting Rights (Based on the majority Shares held )
Earnings Per Share
Investments the 10Cr into the business 10 Cr.

Profits (earned in 1 year ) Rs. 3cr.

Earnings Per Share
Investments the 10Cr into the business 10 Cr.

Profits (earned in 1 year ) Rs. 3cr.

No. of Shares 1,00,000

Earnings Per Share
Investments the 10Cr into the business 10 Cr.

Profits (earned in 1 year ) Rs. 3cr.

No. of Shares 1,00,000

Earnings per share = Profits / No. of Shares

EPS – Earnings per Share – 300

Value of the Share
Investments the 10Cr into the business Rs. 10 Cr.

Profits (earned in 1 year ) Rs. 3cr.

Total amount belonging to the Share holders Rs. 13 Cr.
Value of the Share
Investments the 10Cr into the business Rs. 10 Cr.

Profits (earned in 1 year ) Rs. 3cr.

Rs. 13 Cr.
No. of Shares 1,00,000

Value of the Share-(SC+Profits)/ No.Shares 1300

Dividend
Investments the 10Cr into the business Rs. 10 Cr.

Profits (earned in 1 year ) Rs. 3cr.

Total amount belonging to the Share holders Rs. 13 Cr.

Dividend -10% of profit Rs. 30 lacs

Dividend
Investments the 10Cr into the business Rs. 10 Cr.

Profits (earned in 1 year ) Rs. 3cr.

Total amount belonging to the Share holders Rs. 13 Cr.

Dividend -10% of profit Rs. 30 lacs

Total amount belonging to the Share holders Rs. 12.70 Cr

Basic Terms
Authorized Share Capital 100 Cr.
Paid Up Share Capital …. 10Cr. 10,00,00,000
No. of Shares 1.00,000
Par Value of Share Rs. 1000
No. of Share holders (any no.)
Voting Rights (Based on the majority Shares held )

Profits (earned in 1 year ) Rs. 3cr.

EPS – Earnings per Share – 300
Dividend - (decided by the comp.)
Value of the Share-(SC+Profits)/ 1300
No.Shares
Market Value of the Share – Say 6000
P /E Raito --- MV / EPS 20
Basic Terms
Angel Funding
Venture Capital
Private Limited Vs. Public Limited
IPO
BSE NSE SEBI
Investment Banker - Underwriting
Preference Shares Vs. Equity Shares
Stock Valuation

V0 = Value of share V0 = (D1 + P1 )/ (1+Ke ) ;

D1 = Expected dividend next year
P1 = Expected price of share at the end
of one year
Ke = Investor’s required rate of return
‘g = Expected growth rate in dividend
Dividend Discount Model

V0 = (D1 + P1 )/ (1+Ke )

V0 = D0 (1+g)/(Ke - g)
Earnings Capitalisation Method/ Model

V0 =[EPS1/Ke ] + Present value of

growth opportunities (PVGO)

Where PVGO =[RE1 (R/Ke) 1]/ (Ke g)

Walter’s Valuation Model :

V0 = (D/Ke )+[(EPS D) R/Ke ]/ Ke

D =Expected Dividend per share,

EPS = Expected earnings per share
R = ROE
Ke = Investor’s required Rate of return
Walter’s Valuation Model :

V0 = (D/Ke )+[(EPS D) R/Ke ]/ Ke

D =Expected Dividend per share, = 1

EPS = Expected earnings per share = 5
R = ROE = 18%
Ke = Investor’s required Rate of return =16%