Share Valuation Definition and

Factor Influencing Valuation

By: Amanu Pramono, Finance Engineering

Master Mechanical Engineering
Definition
Share valuation refers to the process of determining the worth
of a company's shares, a crucial aspect in finance and
investment decisions. Various methods are employed for share
valuation, such as the comparative method, discounting
dividends, discounting cash flows, and relative valuation
models [1] [2]

Share valuation is vital for investors, analysts, and

stakeholders as it helps them make informed decisions
regarding buying, selling, or holding shares. It provides an
estimate of what a reasonable market price for a share should
be, considering its underlying fundamentals and potential
returns.

Amanu Pramono 2
Share Valuation Method
Comparative method: This method
involves deriving the internal value of
shares by comparing specific prices or
1 values of similar companies, as outlined
in relevant regulations [1]. Common
metrics used in market-based valuation
include price-to-earnings (P/E) ratio,
price-to-sales (P/S) ratio, and dividend
yield.
Discounting dividends: the process of
calculating the present value of future
dividends to determine the intrinsic value of
2 a stock. The Dividend Discount Model
(DDM) is a fundamental tool used for this
purpose, where the value of a stock is
considered as the sum of the present value
of all future dividends[3]
Amanu Pramono
Discounting cash flows: is a
fundamental aspect of investment
analysis, involves valuing future cash
3 flows by adjusting them to their present
value, considering the time value of
money. Different methods like the
discounted cash flow (DCF) analysis are
utilized to evaluate investments[4]
Relative valuation models: A business
valuation method that compares a
company's value to that of its competitors
4 or industry peers to assess the firm's
financial worth. [5]
3
 Factor Influencing Valuation
Earnings and Revenue: Stable earnings and consistent revenue play a significant
@
role in determining a company’s valuation

Assets and Liabilities: The composition of a company’s assets and

@ liabilities impacts its valuation. A strong asset base can positively affect
valuation, while excessive liabilities may have the opposite effect.
Market Conditions and Competitors: External market dynamics, industry trends, and
@ competitive landscape influence how investors perceive a company’s value.
Companies operating in favorable market conditions may receive higher valuations

Growth Potential: Investors assess a company’s growth prospects.

@
Businesses with robust growth potential are often valued more favorably

Brand Value and Reputation: A strong brand and positive reputation contribute
@ to higher valuations. Brands that resonate with consumers and have a loyal
customer base are typically valued more highly.

Strong Earnings and Revenue: Consistent profitability and revenue growth

@ are indicators of a healthy business. Companies with strong financial
performance tend to command better valuations [6]

Your Name - Student ID Your Thesis Title 4

References
[1] Jana Marková, Božena Hrvoľová
, Share Valuation Using the Comparative Method, 01 Oct 2016-Acta Oeconomica Pragensia
(Prague University of Economics and Business)-Vol. 24, Iss: 6, pp 16-37
[2] Srdjan Stojanovic
, Equity Valuation: Market-Share-Dynamics Effect on the Value of Multiple Product Lines, Univ
ersity of Cincinnati, 16 Nov 2007-Social Science Research Network
[3]
Aslı ÖZKÖK, Dividend Discount Model, 01 Jan 2023-Springer texts in business and economics (
Springer texts in business and economics)-pp 261-287
[4]
ALICIA TUOVILA, Relative Valuation Model: Definition, Steps, and Types of Models, Investope
dia.
[5] CFOSHARE, https://cfoshare.org/blog/key-factors-influencing-business-valuation/

Amanu Pramono 5
Thank You

Amanu Pramono 6