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2.1.2 Valuation of Equity Shares - Practical
2.1.2 Valuation of Equity Shares - Practical
2.1.2 Valuation of Equity Shares - Practical
Bachelor of Business
Administration
Security Analysis and Portfolio Management
23BAT-241
Mr. Virender Thakur
CO2
To illustrate the concepts and theories of portfolio management for better investment. Source: https://www.digitalstudycenter.com/2015/05/security-valuati
on.html
CO3
To compare the investment alternatives and portfolio management theories.
CO4
To summarize the decisions for investment and comparison of portfolios for their results with
the predefined objectives
CO5
To adapt a model for portfolios using traditional concept or by using modern concept to get
more returns.
2
Equity Valuation
Valuation of shares is the process of knowing the value of a
company’s shares. Share valuation is done based on quantitative
techniques and share value will vary depending on the market
demand and supply. Equity Valuation becomes easy when the script
is listed, Company is active in business & shares are regularly
trading. Since market price is ready available in stock exchange
website. Further we can average out the daily closing market price of
last one year to make it full proof, however it becomes challenge to
value unlisted companies equity shares or Companies whose shares
are not regularly trade.
When is Valuation of shares required
1.One of the important reason is when you are
about to sell your business and you wanted to
know your business value
2.When you approach your bank for a loan based
on shares as a security
3.Merger, acquisition, reconstruction,
amalgamation etc – valuation of shares is very
important
4. When your company shares are to be
converted i.e. from preference to equity
Continue…..
6. For tax assessments under the wealth tax or
gift tax acts
7. In case of litigation, where share valuation is
legally required
9. Compensating the shareholders, the company
is nationalized.
Intrinsic value of share
Each share has an intrinsic worth or
value which depends upon the benefits that
the holder of a share expects to receive in
future from the share in the form of dividends
and capital appreciation. The investment
decision of the investor to buy or sell a price is
based on a comparison between intrinsic
value of the share and its current market price.
Over priced and under priced Share
2.Liquidation Value
3.Replacement Cost
Continue…..
(B) Discounted Cash Flow Techniques
1. One year holding
2. Multi year holding
3. constant growth model
4. Multiple growth model
Continue…..
(C) Relative Valuation Techniques
1.Price Earning Ratio
2.Price Book Ratio
12
References
S.Kevin: Security Analysis and Portfolio Management,
PHI Learning.
Punithavathy Pandian: Security Analysis and Portfolio
Management, Vikas House Publisher.
Prasanna Chandra: Investment Analysis and Portfolio
Management, McGraw Hill Education
Stephen Lofthouse, Jane Raybould: Investment
Management, John Wiley & Sons Publications.
Amling Fredrick: Investment- An Introduction to
Analysis and Management, Prentice Hall India.
Donald E. Fischer and Ronald J. Jordan: Security
Analysis and Portfolio Management, Pearson Education.
THANK YOU
For queries
Email: virender.usb@cumail.in