What are the methods for share valuation?

Three methods are Net Asset Method, Yield Method, Fair Value Method.

How is Net Asset Value of shares calculated?

Net Asset Value = Net Asset Available for Equity Shareholder / Number of equity shares.

Adjustments for assets, bad debts, profits, and market value of shares.

ER = (Profit available for Equity Dividend / Paid-up Equity Capital) x 100.

Fair Value = (Net Asset Value + Yield Value) / 2.

Valuation of shares is essential for companies in various scenarios like tax assessments and loan applications, with methods including Net Asset, Yield, and Fair Value calculations.
The Fair Value Method combines the Net Asset Value and Yield Value to determine the average value of shares, providing a comprehensive approach to share valuation in different financial contexts.

What are the methods for share valuation?
Three methods are Net Asset Method, Yield Method, Fair Value Method.
How is Net Asset Value of shares calculated?
Net Asset Value = Net Asset Available for Equity Shareholder / Number of equity shares.
What adjustments are made in the Yield Method?
Adjustments for assets, bad debts, profits, and market value of shares.
How is the expected rate of return calculated?
ER = (Profit available for Equity Dividend / Paid-up Equity Capital) x 100.
What is the formula for calculating the fair value of a share?
Fair Value = (Net Asset Value + Yield Value) / 2.

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Valuation of shares is crucial for companies in various scenarios such as amalgamation, reconstruction schemes, wealth tax assessment, capital gain tax, loan applications, and preference shares conversion.
Three methods for share valuation are Net Asset Method, Yield Method, and Fair Value Method.
Net Asset Method calculates the value based on the net assets available for Equity shareholders divided by the total number of equity shares.
Calculation of net assets involves considering assets at market value and subtracting third-party liabilities like current liabilities, debentures, and preference share capital.
Goodwill, fixed assets, investments, and current assets are included in the asset valuation, while fictitious assets like preliminary expenses are excluded.
The formula for Net Asset Value of shares is Net Asset Available for Equity Shareholder divided by the number of equity shares.
In the given problem, the Net Asset Value of shares is calculated as Rs. 10,64,000 divided by 40,000 shares, resulting in Rs. 26.60 per share.
The Yield Method determines the effective rate of return on shares, typically expressed as a percentage.
The problem provides adjustments for assets like machinery and land, bad debts, profits transferred to reserves, and the market value of shares in similar companies.
Goodwill worth Rs. 3,20,000 is considered in the valuation, and the problem requires finding the share value using the Net Asset Method, Yield Method, and Fair Value Method.

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To calculate the yield value per share, use the formula ER divided by NRR multiplied by the paid-up value per share, resulting in a percentage value.
The expected rate of return (ER) is determined by dividing the profit available for Equity Dividend by the paid-up Equity Capital, then multiplying by 100.
When finding the average profit for three years, subtract any non-operating expenses like bad debts, and allocate 25% of the profit to General Reserve.
The profit available for Equity Dividend is obtained by subtracting any reserve transfers, preferential dividends, or non-recurring income from the net profit.
The fair value of a share is calculated by adding the net asset value to the yield value, then dividing the sum by two to find the average value.