Share and valuation

8/13/2019 Share and valuation

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Share and valuation

INTRODUCTION


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INTRODUCTION

The value of a share is first stated in the Articles of Association ofthe Company. It is also stated in the Balance sheet of all companies. The value,

stated in the Balance Sheet (or in the books of account and Articles of

Association) is called book -value of a share. The value of a share (the price) at

which it can be sold or purchased is market value which may be more or less

than the book-value.

The problems relating to valuation of shares may be discussed under the

following broad heads:

(A) Valuation of Equity Shares; and

(B) Valuation of Preference Shares.

It is the process of recording financial transactions as well as reporting on

the financial status of a business. Two reports (statements) are typically

generated in accounting process. These are (i) Balance sheet, (ii) income

statement. These five elements are (a) assets (b) liabilities (c) equities (capital)

(d) incomes and gains and (e) expenses and losses. Hence, capital is an

important component or element of financial statements. Capital of a company

is represented through number of shares issued and the value of such issued

shares. Hence, capital is an important component or element of financial

statements. Capital of a company is represented through number of shares

issued and the value of such issued shares. The value shown against such shares

in the balance sheet is the face or nominal value not the real value. In this

context we may refer to the basic accounting equation:


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Assets = Capital + Liabilities

Or

Capital = Assets Liabilities

Assets Liabilities is equal to Net Worth. Hence, the real value of a company,

i.e., net worth is the real value of shares of a company or, in other words, the

real value of shares of a company is the net worth of that company.

The meaning of value may be subjective and objective. Value of a pen for

an examinee in the examination hall is subjective, called value -in- use. Itsvalue for a buyer is the monetary value, i.e., its price is objective value, called

value-in- exchange. Value of a share means the money value attached to the

share. It may be the book value (value written in the books of account), or the

price at which it can be sold or purchased. To value the shareholding, multiply

the number of shares by the price per share. For example, if the deceased person

owned 100 shares and their value was 1091p, the value of the shareholding is

1,091.

Knowing what an asset is worth and what determines that value is

a pre-requisite for intelligent decision making -- in choosing investments for a

portfolio, in deciding on the appropriate price to pay or receive in a takeover

and in making investment, financing and dividend choices when running a

business. The premise of valuation is that we can make reasonable estimates ofvalue for most assets, and that the same fundamental principles determine the

values of all types of assets, real as well as financial. Some assets are easier to

value than others, the details of valuation vary from asset to asset, and the

uncertainty associated with value estimates is different for different assets, but

the core principles remain the same. This introduction lays out some general

insights about the valuation process and outlines the role that valuation plays in


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portfolio management, acquisition analysis and in corporate finance. It also

examines the three basic approaches that can be used to value an asset.

Unlisted shares are shares in a private company. They are not listed on arecognized stock exchange and they aren't offered to the general public. Many

family businesses are private companies.

You can't use the nominal value of the shares for your valuation unless it

accurately reflects the open market value. So if the nominal value of the

ordinary shares in the company is 1, the nominal value of 1,000 ordinary

shares is 1,000 - but this is unlikely to be the market value of the shares.

Because there's no active open market for most unlisted shares, you should look

at information normally available to shareholders such as the company's

accounts and performance status and consider the following factors to help you

decide the value:

the value of the company's assets

the economic background when the person died

the size of the shareholding and the shareholders' rights

the company's dividend policy

However you may also need to contact the company secretary or accountant to

find out the market value of unlisted shares.

Inside the Valuation Process

There are two extreme views of the valuation process. At one end are

those who believe that valuation, done right, is a hard science, where there is

little room for analyst views or human error. At the other are those who feel that

valuation is more of an art, where savvy analysts can manipulate the numbers to


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generate whatever result they want. The truth does lies somewhere in the middle

and we will use this section to consider three components of the valuation

process that do not get the attention they deserve the bias that analysts bring to

the process, the uncertainty that they have to grapple with and the complexity

that modern technology and easy access to information have introduced into

valuation.

We almost never start valuing a company with a blank slate. All too

often, our views on a company are formed before we start inputting the numbers

into the models that we use and not surprisingly, our conclusions tend to reflect

our biases. We will begin by considering the sources of bias in valuation and

then move on to evaluate how bias manifests itself in most valuations. We will

close with a discussion of how best to minimize or at least deal with bias in

valuations.

The bias in valuation starts with the Companies we choose to value.

These choices are almost never random, and how we make them can start layingthe foundation for bias. It may be that we have read something in the press

(good or bad) about the company or heard from an expert that it was under or

over value. Thus, we already begin with a perception about the company that we

are about to value. We add to the bias when we collect the information we need

to value the firm. The annual report and other financial statements include not

only the accounting numbers but also management discussions of performance,often putting the best possible spin on the numbers. With many larger

companies, it is easy to access what other analysts following the stock think

about these companies. Zacks, I/B/E/S and First Call, to name three services

among many, provide summaries of how many analysts are bullish and bearish

about the stock, and we can often access their complete valuations. Finally, we

have the markets own estimate of the value of the company- the market price adding to the mix. Valuations that stray too far from this number make analysts


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uncomfortable, since they may reflect large valuation errors (rather than market

mistakes).

In many valuations, there are institutional factors that add to this alreadysubstantial bias. For instance, it is an acknowledged fact that equity research

analysts are more likely to issue buy rather than sell recommendations, i.e., that

they are more likely to find firms to be undervalued than overvalued. This can

be traced partly to the difficulties analysts face in obtaining access and

collecting information on firms that they have issued sell recommendations on,

and partly to pressure that they face from portfolio managers, some of whom

might have large positions in the stock, and from their own firms investment

banking arms which have other profitable relationships with the firms in

question.

The reward and punishment structure associated with finding companies

to be under and over valued is also a contributor to bias. An analyst whose

compensation is dependent upon whether she finds a firm is under or overvalued will be biased in her conclusions. This should explain why acquisition

valuations are so often biased upwards. The analysis of the deal, which is

usually done by the acquiring firms investment banker, who also happens to be

responsible for carrying the deal to its successful conclusion, can come to one of

two conclusions. One is to find that the deal is seriously over priced and

recommend rejection, in which case the analyst receives the eternal gratitude ofthe stockholders of the acquiring firm but little else. The other is to find that the

deal makes sense (no matter what the price) and to reap the ample financial

windfall from getting the deal done.


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A philosophical basis for valuation

A postulate of sound investing is that an investor does not pay more for

an asset than it is worth. This statement may seem logical and obvious, but it isforgotten and rediscovered at some time in every generation and in every

market. There are those who are disingenuous enough to argue that value is in

the eyes of the beholder, and that any price can be justified if there are other

investors willing to pay that price. That is patently absurd. Perceptions may be

all that matter when the asset is a painting or a sculpture, but we do not and

should not buy most assets for aesthetic or emotional reasons; we buy financial

assets for the cashflows we expect to receive from them. Consequently,

perceptions of value have to be backed up by reality, which implies that the

price we pay for any asset should reflect the cash flows it is expected to

generate. Valuation models attempt to relate value to the level of, uncertainty

about and expected growth in these cash flows.

There are many aspects of valuation where we can agree to disagree,including estimates of true value and how long it will take for prices to adjust to

that true value. But there is one point on which there can be no disagreement.

Asset prices cannot be justified by merely using the argument that there will be

other investors around who will pay a higher price in the future. That is the

equivalent of playing a very expensive game of musical chairs, where every

investor has to answer the question, "Where will I be when the music stops? before playing. The problem with investing with the expectation that there will

be a bigger fool around to sell an asset to, when the time comes, is that you

might end up being the biggest fool of all.

A measure used by owners of common shares in a firm to determine the level of

safety associated with each individual share after all debts are paid accordingly.


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Formula:

Should the company decide to dissolve, the book value per common indicates

the dollar value remaining for common shareholders after all assets are

liquidated and all debtors are paid.

In simple terms it would be the amount of money that a holder of a commonshare would get if a company were to liquidate.

Maximizing Shareholder Value

The idea of maximizing shareholder value comes from interpretations of the

role of corporate governance. Corporate governance involves regulatory and

market mechanisms and the roles and relationships between a companysmanagement, its board, its shareholders, other stakeholders, and the goals by

which the corporation is governed.

In large firms where there is a separation of ownership and management and no

controlling shareholder, the principal agent issue arises between upper-

management (the "agent") and shareholders (the "principals"). The danger arises

that, rather than overseeing management on behalf of shareholders, the board of

directors may become insulated from shareholders and beholden to

management.

Thus, one interpretation of proper financial management is that the agents are

oriented toward the benefit of the principals - shareholders - in increasing their
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wealth by paying dividends and/or causing the stock price or market value to

increase.

Maximizing Market Value

The idea of maximizing market value is related to the idea of maximizing

shareholder value, as market value is the price at which an asset would trade in

a competitive auction setting; for example, returning value to the shareholders if

they decide to sell shares or if the firm decides to sell.

There are many different models of corporate governance around the world.These differ according to the variety of capitalism in which they are embedded.

The Anglo-American (US and UK) "model" tends to emphasize the interests of

shareholders.

The sole concentration on shareholder value has been widely criticized,

particularly after the late-2000s financial crisis, where attention has risen to the

concern that a management decision can maximize shareholder value while

lowering the welfare of other stakeholders. Additionally, short-term focus on

shareholder value can be detrimental to long-term shareholder value.

Difference of share and stock

In today's financial markets, the distinction between stocks and shares has been

somewhat blurred. Generally, these words are used interchangeably to refer tothe pieces of paper that denote ownership in a particular company, called stock

certificates. However, the difference between the two words comes from the

context in which they are used.

For example, "stock" is a general term used to describe the ownership

certificates of any company, in general, and "shares" refers to a the ownership

certificates of a particular company. So, if investors say they own stocks, they
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are generally referring to their overall ownership in one or more companies.

Technically, if someone says that they own shares - the question then becomes -

shares in what company.

Bottom line, stocks and shares are the same thing. The minor distinction

between stocks and shares is usually overlooked, and it has more to do with

syntax than financial or legal accuracy.

The main differences between Shares and Stocks are as follows :

Stocks are fully paid up whereas shares may be fully paid up or partly paid up.

Shares may be issued when a company is incorporated but stock cannot be

issued under such circumstances. Only fully paid shares can be converted into

stock.

Stocks is convenient method of transferring because it can be issued or

transferred in fractional parts whereas shares cannot be divided below the face

value of each share.

Stocks are not numbered whereas shares are serially numbered.

Shares are always registered and not transferable by mere delivery but stock

man may be registered or unregistered or unregistered stock can be transferred

by mere delivery.

Conversion of shares into stocks :

Conversion of fully paid shares into stock may likewise be affected by the

ordinary resolution of the company in the general meeting. Notice of the

conversion must be given to the Registrar within 30 days of the conversion, the


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stock may be converted into fully paid shares following the same procedure

and notice given to the Registrar in Form no 5. In this connection, the

following provisions are important :-

1. Only fully paid shares can be converted into stocks

2. Direct issue of stock to members is not lawful and cannot be done.

3. The difference between shares and stock is that shares are transferable only

in complete units so that transfer of half or any portion of share is not

possible whereas stock is expressed in terms of any amount money and is

transferable in any money fractions.

4. Articles may be give the Board of Directors authority to fix minimum

amount of stock transferable.

5. Since stock is not divided into different units it is not required to be

numbered. Shares on the other hand must be numbered.

Share valuation: Tax controversies dissected

With increasing globalization world over, corporate world has dissolved

national boundaries and the multinational enterprises have expanded their

footprints worldwide by setting up subsidiaries, joint ventures and other form of

enterprises. The growth of these entities although a welcome move, creates

complex taxation issues for both tax authorities and the multinationalenterprises since diversity in country rules for the taxation of the associated

entities of the group cannot be viewed in isolation. In order to tackle the

complex issues involved in the transaction between two enterprises of the same

group with different tax jurisdiction, the Indian Finance Act 2001 introduced a

mechanism on Transfer Pricing (TP) under sections 92 to 92F of the Indian

Income Tax, 1961 (the Act). The Indian TP regulations provide that any


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income arising from international transactions between associated enterprises

should be computed having regard to the arms length price.

Some recent changes in Indian Tax Regime

The Indian tax authorities have recently amended the definition of

International transaction through Finance Bill 2012 to plug such arrangements

of issuing shares at a price lower than the arms length price. The ambit of TP

provisions has been widened by expanding the definition of international

transactions to include capital financing; guarantees; any debt arising during

course of business; business reorganizations or restructuring irrespective of

whether or not the same has an impact on current years pro fits, income, losses

or assets; intangible properties including marketing intangibles, human assets,

technology related intangibles, etc.


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OBJECTIVE


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OBJECTIVE

Firms can always focus on a different objective function.

Examples would include

maximizing earnings maximizing revenues maximizing firm size maximizing market share maximizing EVA

The key thing to remember is that these are intermediate objective functions.

To the degree that they are correlated with the long term health and value of the

company, they work well.

Private companies, are done for legal or tax reasons. A partnership has to

be valued, whenever a new partner is taken on or an old one retires, and

businesses that are jointly owned have to be valued when the owners decide to

break up. Businesses have to be valued for estate tax purposes when the owner

dies, and for divorce proceedings when couples break up. While the principles

of valuation may not be different when valuing a business for legal proceedings,the objective often becomes providing a valuation that the court will accept

rather than the right valuation.

Shares that calculate interest on a daily basis

Some shares calculate interest on a daily basis but the payments are only made

once or twice a year, these types of stocks and shares will show either a marking


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of 'im' or 'ik' on a daily basis. In these cases you'll need to work out their value

from the date the last payment was made until the date of death.

If the payment date has been declared the markings change to 'imx' or 'ikx'.If the person died after the payment had been declared but before it was made

you should deduct the net interest from the date the person died to the date of

the payment.

Working out the value of these is complicated and it's a good idea to use a

professional valuer to help you.

1. Shareholder value is the best measure of wealth creation for the firm.

2. Shareholder value maximization produces the greatest competitiveness.

3. Shareholder value maximization fairly serves the interests of the

companys other stakeholders.

4. To attend general meeting and vote.

5. To a share of the company's profits.

6. To a final distribution on winding up.

7. That the company be run lawful

Shares and Assets Valuation (SAV) is a specialist area within HM Revenue &

Customs (HMRC) based in Nottingham. In addition to valuing unquoted shares

we also value intangible assets (intellectual property, trademarks, patents,

goodwill etc), foreign shares, foreign residential property, bloodstock, chattels(things like antiques, art and jewellery), boats, aircraft and a whole range of

other assets. When the open market value of any of these assets is relevant to

your tax affairs, your Tax Office may instruct SAV to consider and, if

necessary, negotiate that value with you. Depending on the circumstances, you

may be able to ask SAV to consider the value once the transaction has occurred


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and before you file your return, using the Post Transaction Valuation Check

(PTVC) service.

The cost of shares can be difficult to identify when you sell or dispose ofsome - but not all - of your shares. You might buy the same type of shares, in

the same company, at different times. In some cases you might buy shares of the

same class, in the same company, but at different times and prices. When you

sell or dispose of some of these shares, share identification rules match the

shares you sold with the ones you bought. The rules you must apply are set out

below. First match the shares sold or disposed of with shares you bought on that

same day. This is the 'same day' rule. If you haven't bought and sold shares on

the same day, you move on to the next step. after the sale or disposal. This is the

bed and breakfasting' rule. If you haven't bought any shares within 30 days of

the sale, you then look at shares bought at any other time. If the shares were

acquired on any other date a different rule applies. All shares acquired before

the day the shares were sold, of the same type in the same company, are pooled

to create a single asset. This is called a 'Section 104 Holding'.

If you held shares on 31 March 1982, these are included in the Section 104

Holding at their value on that day, not at their original cost.

Companies sometimes reorganise their shares - for example as a result of

mergers and take-overs. The cost of the resulting shares is subject to special

rules. Applying these rules only becomes relevant when the shares are sold or

disposed of. The rules apply when a company has done one of the following:

made a bonus issue or rights issue of shares

recognised its share capital in some other way

taken over another in exchange for issuing shares in itself

Such a take-over may involve any of the following:
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the companies have merged

the companies have de-merged

there has been some other form of company reconstruction

This page provides some guidance on the points you should consider when

preparing/submitting a valuation of some of the main assets SAV considers. If

you have any general valuation queries, advisers at the enquiry line detailed

below will try to assist where possible. They are only able to provide general

guidance and cannot comment on specific valuations or tell you how to carry

out a valuation.

The cost of shares can be difficult to identify when you sell or dispose of

some - but not all - of your shares. You might buy the same type of shares, in

the same company, at different times.

SAV undertakes the valuation of a wide range of asset for all tax purposes. As

there is no active market for most of the assets considered by SAV, decisions

from the Courts over the years have provided guidance.

When carrying out valuations for tax purposes it is important that they are

carried out on the correct basis. Under Self Assessment procedures taxpayers

are responsible for either calculating the appropriate amount of tax due or, in the

case of individuals, for providing the appropriate figures to enable HMRC to

calculate it on their behalf. If a valuation is not provided on the correct basis ataxpayer's tax return may be challenged by HMRC. If following any challenge

the valuation has to be adjusted the taxpayer may be faced with having to pay

not only interest on any additional tax payable but penalties as well.

The correct basis of valuation for tax purposes


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The correct basis of valuation for tax purposes is the 'market value' as defined in

the relevant statute. The definition of market value for Capital Gains Tax can be

found in Section 272 of the Taxation of Chargeable Gains Act 1992, for

Inheritance Tax it can be found in Section 160 of the Inheritance Tax Act 1984

and for Stamp Duty Land Tax in Section 118 of the Finance Act 2003.

These definitions are all very similar and broadly define market value as:

'The price which the property might reasonably be expected to fetch if sold in

the open market at that time, but that price shall not be assumed to be reduced

on the grounds that the whole property is to be placed on the market at one and

the same time.'

The current statutory definitions are similar to those used in earlier Acts and

over the years the above definition has been examined by the courts in

numerous cases. The case law was usefully summarized by the Court of Appeal

in the case of IRC v Gray (Executor of Lady Fox (Deceased) in 1994. The case

law has established some important assumptions that must be made when

arriving at the market value in accordance with the above definition.

The assumptions derived from case law

Case law has established the following assumptions:

the sale is a hypothetical sale

the vendor is a hypothetical, prudent and willing party to the transaction

the purchaser is a hypothetical, prudent and willing party to the

transaction (unless considered a 'special purchaser')

for the purposes of the hypothetical sale, the vendor would divide the

property to be valued into whatever natural lots would achieve the best

overall price (this is the principle of 'prudent lotting')


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all preliminary arrangements necessary for the sale to take place have

been carried out prior to the valuation date

the property is offered for sale on the open market by whichever method

of sale will achieve the best price there is adequate publicity or advertisement before the sale takes place so

that it is brought to the attention of all likely purchasers

the valuation should reflect the bid of any 'special purchaser' in the

market (provided they are willing and able to purchase)

In Capital Gains Tax cases the valuation date may be the 31 March 1982 (when

required by Section 35(2) of the Taxation of Chargeable Gains Act 1992), or,

when it is necessary to assess the market value at the date of actual acquisition

or disposal, the date a binding contract was entered into.

SAV is happy to deal with you directly on all valuation matters. However,

valuation is a specialised subject and can involve highly complex issues, so you

may wish to consider appointing a professional adviser, such as, an accountant,solicitor or valuation expert to represent you. If you do, it will gladly liaise with

them too.

Unquoted shar es

For any valuation of unquoted shares, whether registered in the UK or a foreign

country, you should consider/provide the following information:

The company's performance and financial status as shown in its accounts

for, say, the last three years before the date of valuation, and any other

information normally available to its shareholders. In the case of foreign

companies you will need to provide copies of the accounts for the three

years before the date of valuation.


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The size of the shareholding, and shareholders' rights. If, for example, the

holding is one that would give control of a company, it may be necessary

to agree the value of all the company's assets and to have much more

information about the company's performance and prospects than is in the

published accounts.

The company's dividend policy.

Appropriate yields and price earnings ratios of comparable companies or

sectors.

The commercial and economic background at the valuation date.

A full explanation as to how the suggested value has been calculated,including:

o the valuation approach adopted, for example Earnings, Assets,

Dividend Yield or industry specific valuation method

o any assumptions or adjustments made

o all the supporting evidence used.

Need for Valuation

The following are the circumstances where need for valuation of shares

arises :

(i) Where companies amalgamate or are similarly reconstructed, it may be

necessary to arrive at the value of the shares held by the members of the

company being absorbed or taken over. This may also be necessary to protect

the rights of dissenting shareholders under the provisions of the Companies

Act, 1956.

(ii) Where shares are held by the partners jointly in a company and dissolution

of the firm takes place, it becomes necessary to value the shares for proper

distribution of the partnership property among the partners.

(iii) Where a portion of the shares is to be given by a member of proprietary

company to another member as the member cannot sell it in the open market, it


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becomes necessary to certify the fair price of these shares by an auditor or

accountant.

(iv) When a loan is advanced on the security of shares, it becomes necessary to

know the value of shares on the basis of which loan has been advanced.

(v) When preference shares or debentures are converted into equity shares, it

becomes necessary to value the equity shares for ascertaining the number of

equity shares required to be issued for debentures or preference shares which

are to be converted.

(vi) When equity shareholders are to be compensated on the acquisition of their

shares by the Government under a scheme of nationalization, then it becomesnecessary to value the equity shares for reasonable compensation to be given to

their holders.

Companies often issue shares to raise capital for operational and strategic

reasons. Shares of public companies trade on regulated stock exchanges, where

investors can place buy and sell orders. Shares are an integral part of the

economy because they are a core component of most investment portfolios.

Investors can own shares directly or indirectly through mutual funds.

When two or more companies amalgamate. When absorption of a company takes place. When some shareholders do not give their consent for reconstruction of

the company, there shares are valued for the purpose of acquisition. When shares are held by the partners jointly in a company

and dissolution takes place., it becomes necessary to value theshares for

proper distribution of partnership property amongthe partners.


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COMPANY PROFILE


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COMPANY PROFILE

SPFS Pvt. Ltd. is one of the fastest growing financial institutions in India.

One of the very few organizations in all of India that offers efficient brokingservice, world class research and cutting edge financial technology all under one

roof is SPFS Pvt. Ltd.

Our Vision

We are in the quest of a sovereign and independent Indian Market that is

treasured globally for its economic architecture and on the ball mass participation.

Our mission

We aim to enlighten investors on the modern age investment philosophy and

equip our clients with preeminent financial resources. We aspire to navigate our

clients all the way through the tides and ripples of the market and lend a hand inachieving their dream harbor.

Our strength

SPFS Pvt. Ltd. is reputed for its qualified research and exhaustive analytical and

methodical investment approach. A vastly experienced Research and analysis

team offers clients elite market insights. Next generation financial instrumentstailor made by line-up of experts for the new age investor and modern scientific

practices like Complex Algorithms, Mechanical Trading Systems, Performance

Scanning R egimes, Mathematical and Statistical Data Analysis etcare the

highlights of SPFS Pvt. Ltd.

.


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Our oath

We take an oath to advice our investors with absolute honesty and long to help

out punctually and diligently.

Advantages of Highly Qualified Research team recognized by ATA

(Association of Technical Analysts) and EWI (Elliott Wave International) is

lead by Shounak Pohankar (CFT) a well Known Technical Analyst and Stock.

Specialties

ATA Recognized Research Team, Elliott Wave International Affiliation,

Automated trading mechanisms for Managing client Portfolios with flexibility.


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The Growth of Share Capital:

The following graph is stating the growth Share Capital last 6 years.

Authorised Share Capital?
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TYPES OF SHARES

Share capital is the fund which is generated by issue of company share in the

market. The amount of the companys share changes with time depending on

the performance of the company in the market.
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Share in Our Success

Shareholding Pattern as on 31 December, 2006

CategoryNo. of shares

held

Percentage of issued share

capital

1 Tata Group of companies 7744961 51.122 Mutual funds and UTI 1612010 10.64

3 Banks 550 0.00

4Financial institutions/

insurance companies2053681 13.56

5 FIIs 1747328 11.53

6 RIs/foreign nationals 80714 0.547 Bodies corporate 376282 2.48

8 Indian public 1534474 10.13

Total 15,150,000 100

At present, the promoter group holds 7,744,961 equity shares (representing

51.12 per cent of the paid-up share capital of the company).


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Besides the above-mentioned equity shares held by the promoter group, none of

the promoter group or the directors of the promoter group hold any equity

shares in the company.

Including natural capital in valuation
http://blogs.accaglobal.com/2012/09/19/including-natural-capital-in-valuation-methods/natural-capital2/http://blogs.accaglobal.com/2012/09/19/including-natural-capital-in-valuation-methods/natural-capital2/


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Par value is the legal capital of a share of stock.

The face value of a share of stock is known as its par value, which is the legal

capital of each share of stock. A business must retain this legal capital in its business and may not pay it out as dividends to shareholders. Face value, or par

value, has no relation to the market value of stock. Understand the importance

of par value in your small business.


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PROBLEM OF THE

STUDY


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PROBLEM OF THE STUDY

Using option-pricing models in valuation does have its advantages. First,

there are some assets that cannot be valued with conventional valuation models because their value derives almost entirely from their option characteristics. For

example, a biotechnology firm with a single promising patent for a blockbuster

cancer drug wending its way through the FDA approval process cannot be

easily valued using discounted cash flow or relative valuation models. It can,

however, be valued as an option. The same can be said about equity in a money

losing company with substantial debt; most investors buying this stock are

buying it for the same reasons they buy deep out-of-the-money options. Second,

option-pricing models do yield more realistic estimates of value for assets where

there is a significant benefit obtained from learning and flexibility. Discounted

cash flow models will understate the values of natural resource companies,

where the observed price of the natural resource is a key factor in decision

making. Third, option-pricing models do highlight a very important aspect of

risk. While risk is considered almost always in negative terms in discounted

cash flow and relative valuation (with higher risk reducing value), the value of

options increases as volatility increases. For some assets, at least, risk can be an

ally and can be exploited to generate additional value.

This is not to suggest that using real options models is an unalloyed good.

Using real options arguments to justify paying premiums on discounted cashflow valuations, when the options argument does not hold, can result in

overpayment. While we do not disagree with the notion that firms can learn by

observing what happens over time, this learning has value only if it has some

degree of exclusivity. We will argue that it is usually inappropriate to attach an

option premium to value if the learning is not exclusive and competitors can

adapt their behavior as well. There are also limitations in using option pricingmodels to value long-term options on non-traded assets. The assumptions made


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about constant variance and dividend yields, which are not seriously contested

for short term options, are much more difficult to defend when options have

long lifetimes. When the underlying asset is not traded, the inputs for the value

of the underlying asset and the variance in that value cannot be extracted from

financial markets and have to be estimated. Thus the final values obtained from

these applications of option pricing models have much more estimation error

associated with them than the values obtained in their more standard

applications (to value short term traded options).

Shareholder value may be detrimental to a companys worth. When all of

a companys focus and strategy is concentrated on increasing share prices, the

practice and ethics of the firm can become lost because of the following

problems with the shareholder value model.

Lack of transparency, Increased Risk

Short Term Strategy Alternative: stakeholder value

There is a role for valuation at every stage of a firms life cycle. For small

private businesses thinking about expanding, valuation plays a key role when

they approach venture capital and private equity investors for more capital. The

share of a firm that a venture capitalist will demand in exchange for a capital

infusion will depend upon the value she estimates for the firm. As the

companies get larger and decide to go public, valuations determine the prices at

which they are offered to the market in the public offering. Once established,

decisions on where to invest, how much to borrow and how much to return to

the owners will be all decisions that are affected by valuation. If the objective in


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corporate finance is to maximize firm value1[6] , the relationship between

financial decisions, corporate strategy and firm value has to be delineated.

As a final note, value enhancement has become the mantra of management

consultants and CEOs who want to keep stockholders happy, and doing it

right requires an understanding of the levers of value. In fact, many

consulting firms have come up with their own measures of value (EVA and

CFROI, for instance) that they contend facilitate value enhancement.


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SCOPE OF STUDY


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SCOPE OF STUDY

Valuation models have become more and more complex over thelast two decades, as a consequence of two developments. On the one side,

computers and calculators have become far more powerful and accessible in the

last few decades. With technology as our ally, tasks that would have taken us

days in the pre-computer days can be accomplished in minutes. On the other

side, information is both more plentiful, and easier to access and use. We can

download detailed historical data on thousands of companies and use them aswe see fit. The complexity, though, has come at a cost. In this section, we will

consider the trade off on complexity and how analysts can decide how much to

build into models. The importance of valuation of shares also arises in case of

amalgamation of companies when there is the need for having a fair valuation of

shares to settle the purchase price. Sometimes preference shares and debentures

are converted into equity shares as per the terms of issue. In such case, a fresh

valuation method should be adopted for equity shares to calculate the exchange

ratio.

If the deceased person had shares in an ISA (Individual Savings Account)

you should ask the ISA fund manager for a valuation. You should be able to

find contact details from paper work held by the deceased person. Use the

closing price on the day the person died. If you can't obtain a valuation you

should list the shares and value them in the same way as other shares. You can

deduct any managers' fees from the valuation.

The same applies to PEPs (Personal Equity Plans) and TESSAs (Tax Exempt

Special Savings Accounts).


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A growing number of companies known for their hard-nosed approach to

business such as GE, Google, IBM, Intel, Johnson & Johnson, Nestl,

Unilever, and Wal-Mart have already embarked on important efforts to create

shared value by reconceiving the intersection between society and corporate

performance. Yet our recognition of the transformative power of shared value is

still in its genesis. Realizing it will require leaders and managers to develop new

skills and knowledge such as a far deeper appreciation of societal needs, a

greater understanding of the true bases of company productivity, and the ability

to collaborate across profit/nonprofit boundaries.

Capitalism is an unparalleled vehicle for meeting human needs, improving

efficiency, creating jobs, and building wealth. But a narrow conception of

capitalism has prevented business from harnessing its full potential to meet

societys broader challenges. The opportunities ha ve been there all along but

have been overlooked. Businesses acting as businesses, not as charitable donors,

are the most powerful force for addressing the pressing issues we face. The

moment for a new conception of capitalism is now; societys needs are l arge

and growing, while customers, employees, and a new generation of young

people are asking business to step up.

The purpose of the corporation must be redefined as creating shared value, not

just profit per se. This will drive the next wave of innovation and productivity

growth in the global economy.

The concept of shared value, in contrast, recognizes that societal needs,

not just conventional economic needs, define markets. It also recognizes that

social harms or weaknesses frequently create internal costs for firms such as

wasted energy or raw materials, costly accidents, and the need for remedial

training to compensate for inadequacies in education. And addressing societal

harms and constraints does not necessarily raise costs for firms, because they


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can innovate through using new technologies, operating methods, and

management approaches and as a result, increase their productivity and

expand their markets.

METHOD OF DATA

COLLECTION


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METHOD OF DATA COLLECTION

Valuation of shares before buying them is one of the biggest problems

that beginners face because they are not familiar with the three main valuation

methods that are available to them.

So in this blog post and video, I am going to introduce you to those 3 main

valuation methods and explain how you can use them to value any business orcompany and thus its shares. The different methods of valuing shares may be

broadly classified as follows :

1. Net Assets Basis (or Intrinsic Value or Break up Value) Method.

2. Earning Capacity (or Yield Basis or Market Value) Method.

3. Dual (or Fair Value) Method.

1 Net Asset Valuation

Also known as the Sum of the Parts model, the Net Asset Valuation

method involves calculating what all the assets and liabilities of a business are

worth and then adding them all up to reach a total.

Assets include buildings, machinery, equipment, inventory, cash, investments

and so on things that the business owns and could sell to someone else.

Liabilities include bank loans, leasing arrangements and goods which the

company has bought but not yet paid for i.e. things that the business owes to

someone else.


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If you were buying the business outright, you would value the company assets

and liabilities individually using a process known as due diligence.

As share investors, this method is not available to us so we need to get thesummary values from the companys Balance Sheet.

The Balance Sheet is a key document within every set of accounts and so is

available to investors in the half-year (interim) and full-year (final) results.

To make it even easier for us, the Net Asset Value (NAV ) of a company is

usually calculated for us and shown as a separate line in the Balance Sheet.

Having got the Net Asset Value for the company, we then divide this by the

total number of shares issued by the company to arrive at the net asset value per

share or book value per share .

This therefore tells us how much each share of the company is worth in terms of

its assets and liabilities.

We can then compare this with the current actual share price to decide whether

the shares are overvalued or undervalued by the stock market.

The following points should be considered while valuing of shares according to

this method:

* Goodwill must be properly valued

* The fictitious assets such as preliminary expenses, discount on issue of shares

and debentures, accumulated losses etc. should be eliminated.

* The fixed assets should be taken at their realizable value.

* Provision for bad debts, depreciation etc. must be considered.

* All unrecorded assets and liabilities ( if any) should be considered.

* Floating assets should be taken at market value.


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* The external liabilities such as sundry creditors, bills payable, loan,

debentures etc. should be deducted from the value of assets for the

determination of net value.

The net value of assets, determined so has to be divided by number of equity

shares for finding out the value of share. Thus the value per share can be

determined by using the following formula:

Value Per Share=(Net Assets-Preference Share Capital)/Number Of Equity

Shares

Under this method, the value per share is calculated on the basis ofdisposable profit of the company. The disposable profit is found out by

deducting reserves and taxes from net profit. The following steps are applied for

the determination of value per share under earning capacity:

Step 1: To find out the profit available for dividend

Step 2: To find out the capitalized valueCapitalized Value =( Profit available for equity dividend/Normal rate of return)

X 100

Step 3: To find out value per share

Value per share = Capitalized Value/Number of Shares

2. Yield Or M arket Value Of Shares

The expected rate of return in investment is denoted by yield. The term

"rate of return" refers to the return which a shareholder earns on his investment.

Further it can be classified as (a) Rate of earning and (b) Rate of dividend. In

other words, yield may be earning yield and dividend yield.

a. Earning Yield


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Under this method, shares are valued on the basis of expected earning and

normal rate of return. The value per share is calculated by applying following

formula:

Value Per Share = (Expected rate of earning/Normal rate of return) X Paid up

value of equity share

Expected rate of earning = (Profit after tax/paid up value of equity share) X 100

b. Dividend Yield

Under this method, shares are valued on the basis of expected dividend and

normal rate of return. The value per share is calculated by applying following

formula:

Expected rate of dividend = (profit available for dividend/paid up equity share

capital) X 100

Value per share = (Expected rate of dividend/normal rate of return) X 100

Under this method, the value per share is calculated on the basis of

disposable profit of the company. The disposable profit is found out by

deducting reserves and taxes from net profit. The following steps are applied for

the determination of value per share under earning capacity:

Step 1: To find out the profit available for dividend

Step 2: To find out the capitalized value

Capitalized Value =( Profit available for equity dividend/Normal rate of return)

X 100

Step 3: To find out value per share

Value per share = Capitalized Value/Number of Shares


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3. Dual (or Fair Value) Method

This method is also known as Intrinsic Value Method, Asset Backing

Method, Equity Method, Assets Balancing Method or Assets Valuation Method.

Suffice it to say that this is the method that the stock market analysts and

professional investors use but it is not a method that I would suggest beginners

use unless you are an accountant.

All three methods have their benefits and drawbacks no single method

is best for everything.

The best one to use for your company/shares will depend on what kind of

company it is.

For asset rich businesses like property firms, the Net Asset Value method is the

most useful.

For companies with few assets, the P/E ratio comparison method is widely used.

I use these first two methods all the time for more information on the PE Ratio

and its sister asset related PBV ratio.

The DCF method is best used by professional investors when buying high

growth companies or those with predictable cash flows.

The problems relating to valuation of shares may be discussed under the

following broad heads:

(A) Valuation of Equity Shares.

After arriving at the value of the business if we eliminate the value due to the

preference shareholders, the remainder belongs to the equity shareholders.Therefore, very simply,


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Value Per Equity Share = Value of Business due to Equity Shareholders / No. of

Equity Shares.

The Value of the business is arrived at by two methods Asset-based or Yield- based. Before we proceed, lets understand how to deal with different classe s of

equity shares.

Equity Value and Per Share Value

The conventional way of getting from equity value to per share value is to

divide the equity value by the number of shares outstanding. This approach

assumes, however, that common stock is the only equity claim on the firm.

In many firms, there are other equity claims as well including:

warrants, that are publicly traded management and employee options, that have

been granted, but do not trade conversion options in convertible bondscontingent value rights, that are also publicly traded.

The value of these non-stock equity claims has to be subtracted from

the value of equity before dividing by the number of shares

outstanding.

A warrant is a security issued by a company that provides the holder

with the right to buy a share of stock in the company at a fixed priceduring the life of the warrant.

A warrant is therefore a long term call option on the equity of the firm

and can be valued using option pricing models.

Warrants and other equity options issued by the firm are claims on the

equity of the firm and have to be treated as equity, which has relevance

for:


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estimating debt and equity for the leverage calculation estimating per share value from total equity value

(B) Valuation of Preference Shares.

You would first have to start by checking whether they are preference

shares or equity shares. Obviously, the criteria for valuation of these types

differ. Preference shareholders have fixed dividend rights as well as right to

priority in repayment of their capital. To equity shareholders on the other hand,

belongs the entire business after settling off the claim of preference

shareholders.

Let us start with the valuation of the preference shares first. The formula for

valuation is

Actual Yield from Preference Share x Face Value of Preference Share =

Expected Yield from Preference Shares

Now let us try to apply this formula to a problem. Assume that the preference

shares of a particular company carry a right to dividend, say 12% [actual yield

in the above formula]. Now well have to narrow down as to what is the

expected yield from this company for its preference shares. We start with the

industry rate of expectation for preference shares say 11%. Then we check the

capacity of the company on the two performance parameters:

a. ability to repay the preference capital

b. ability to pay the preference dividend

Preference Shares are shares which have preference over ordinary shares

for payment of dividend or return of capital. However, they are junior to all

forms of company debt, including debentures, loan notes and bank debt on a

winding-up.


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A company can be put into administration if it fails to pay interest on its

debt, but preference dividends, like ordinary dividends, are paid at the discretion

of directors. The level of discretion will depend on the terms of the prospectus

with the payment of dividends on some preference shares being mandatory

providing certain conditions (for example sufficient distributable reserves and

capital adequacy) are met while for others the directors can have absolute

discretion. This means that preference shareholders have no recourse to the

company in the event of non-payment, although the company will not be able to

pay an ordinary dividend until preference dividends have been paid.

Some Preference Shares are cumulative which means that the

company must pay any dividend arrears from previous years before it can pay

an ordinary dividend. Most bank Preference Shares are non-cumulative and

were issued by banks to boost their tier 1 capital bases.

Purchases of Preference Shares, like ordinary shares, are subject to 0.5%stamp duty. The capital gains and income tax treatment is also the same as for

ordinary shares. Preference shares are usually dealt "dirty price" i.e. with

accrued dividend in the dealing price, and not dealt separately as with bonds.

Types of Preference Shares

1.Cumulative or Non-cumulative : A non-cumulative or simple preference

shares gives right to fixed percentage dividend of profit of each year. In case no

dividend thereon is declared in any year because of absence of profit, the

holders of preference shares get nothing nor can they claim unpaid dividend in

the subsequent year or years in respect of that year. Cumulative preference

shares however give the right to the preference shareholders to demand theunpaid dividend in any year during the subsequent year or years when the


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profits are available for distribution . In this case dividends which are not paid

in any year are accumulated and are paid out when the profits are available.

2.Redeemable and Non- Redeemable : Redeemable Preference shares are preference shares which have to be repaid by the company after the term of

which for which the preference shares have been issued. Irredeemable

Preference shares means preference shares need not repaid by the company

except on winding up of the company. However, under the Indian Companies

Act, a company cannot issue irredeemable preference shares. In fact, a company

limited by shares cannot issue preference shares which are redeemable after

more than 10 years from the date of issue. In other words the maximum tenure

of preference shares is 10 years. If a company is unable to redeem any

preference shares within the specified period, it may, with consent of the

Company Law Board, issue further redeemable preference shares equal to

redeem the old preference shares including dividend thereon. A company can

issue the preference shares which from the very beginning are redeemable on a

fixed date or after certain period of time not exceeding 10 years provided it

comprises of following conditions :-

1. It must be authorized by the articles of association to make such an issue.

2. The shares will be only redeemable if they are fully paid up.

3. The shares may be redeemed out of profits of the company which

otherwise would be available for dividends or out of proceeds of newissue of shares made for the purpose of redeem shares.

4. If there is premium payable on redemption it must have provided out of

profits or out of shares premium account before the shares are redeemed.

5. When shares are redeemed out of profits a sum equal to nominal amount

of shares redeemed is to be transferred out of profits to the capital

redemption reserve account. This amount should then be utilised for the purpose of redemption of redeemable preference shares. This reserve can


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be used to issue of fully paid bonus shares to the members of the

company.

3.Participating Preference Share or non-participating preference shares :Participating Preference shares are entitled to a preferential dividend at a fixed

rate with the right to participate further in the profits either along with or after

payment of certain rate of dividend on equity shares. A non-participating share

is one which does not such right to participate in the profits of the company

after the dividend and capital have been paid to the preference shareholders.

Share certificate

A share certificate is a document issued by the company stating that the person

named therein is the registered holder of specified number of shares of a certain

class and they are paid up upto the amount specified in the share certificate. The

share certificate must bear the common seal of the company and also must be

stamped under the relevant stamp act. One or more directors must sign it .It

should state the name as well as occupation of the holder and number of shares ,

their distinctive number and the amount paid up.

Every company making allotment of shares must deliver the share certificate of

all shareholders within three months of allotment. In case of transfer of shares,

the share certificate must be ready for delivery within two months after the

shares are lodged with the company for transfer. If default is made in complyingwith the above provisions, the company and every officer of company who is in

default is liable to punishment by way of fine which may extent to Rs500 for

every day of default. The allotee must give notice to the company reminding of

its obligation and even then, if default is not made good within 10 days of the

notice, the allotee may apply to the Company Law Board for direction to the

company to issue such share certificate in accordance with the Act. Application


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for this purpose must be made with the concerned regional bench of the

Company Law Board by way of petition. The petition should be accompanied

by the following documents :-

1. Copy of the letter of allotment issued by the company

2. Documentary evidence for the allotment of the shares or debentures for

transfer

3. Copy of the notice served on the company requiring to make good the

default

4. Any other correspondence

5. Affidavit verifying the petition

6. Bank draft evidencing payment of application fee

7. Memorandum of appearance with the Board copy of resolution of the

board for the executive Vakalat Nama as the case may be Companies act

does not prescribe any form for share certificate.

A Shareholder must keep his share certificate in safe custody or in case ofshares which are traded in demat mode, with the depository. The company may

renew or issue a duplicate certificate if such certificate is proved to have been

lost or destroyed or having being defaced or mutilated or torn or is surrendered

to the company. However, if the company, with the intention to defraud issues

duplicate certificate, the company shall be punishable with the fine upto

Rs10000 and every officer of the company who is in default with imprisonmentupto 6 months or fine upto Rs10000 or both.

Once a share certificate is issued by the company, the name of the person in

whose favour it has been issued becomes the registered shareholder. Nobody

can then deny the fact of his being the registered shareholder of the company.

Similarly, if the certificate states that on each of shares a certain amount has

been paid up, nobody can deny the fact that such amount has been paid up


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CONCLUSION


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CONCLUSION

Valuation plays a key role in many areas of finance -- in corporate

finance, in mergers and acquisitions and in portfolio management. The models

presented will provide a range of tools that analysts in each of these areas will

find of use, but the cautionary note sounded in this introduction bears repeating.

Valuation is not an objective exercise, and any preconceptions and biases that

an analyst brings to the process will find their way into the value. The company

fails, the lenders may claim in the liquidation for the return of their money as

creditors of the company. If the loans have been secured by the company

issuing debentures to the three shareholder/directors, they may rank as secured

creditors, which will put them in a more advantageous position than the

ordinary creditors. There may be good reasons as between the three

shareholders why they should want to see that the money committed by the

others is in the form of share capital. The decision as to the capitalization of a

company should usually be taken with appropriate legal and accountancy

advice. Company Law Solutions provides an expert service for all your

company law requirements, including share allotments, transfers and

shareholders' agreements.

This is especially important to those that are either near or currently in

their retirement years. We contend that all this talk about how dangerous it is to

invest in stocks is overblown. The evidence clearly confirms that if you investin great businesses at sound valuations, long-term risks are relatively low and

returns more than adequate to meet your needs.

To put this into another context, although it does happen, the failure of a great

business is a relatively rare occurrence. However, market mispricing, especially

when it overvalues a great business, is much more common. Moreover, the


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biggest losses will generally occur more from overvaluation than any failure on

the business behind the companys part.

On the other hand, its also important to distinguish between the various levelsof overvaluation. In some cases, a slight or even a moderate overvaluation of a

companys shares, even a great company, will moderately increase risk while

simultaneously lowering long-term return. However, in the long run these

situations may not be devastating, especially for best-of-breed companies.

Influencing Businesses

Shareholders have the right to participate and vote in annual general meetings.

Small individual shareholders holding a few hundred shares may not be able to

influence companies. However, when these small investors join with mutual

funds and other institutional shareholders, they can influence corporate boards

and senior management to change strategic direction. Investors can influence

corporate strategy by simply abandoning the shares of under-performing

companies, thus driving share prices down and forcing the board to make the

necessary changes. Healthy companies mean a healthy company, which benefits

everybody.

In conclusion, its important to have a sound perspective on valuation.

Calculating current and future earnings yields are a straightforward and simple

method of accomplishing that task. When the earnings yield on stocks, which isthe inverse of the PE, is very low it should be obvious that there is not enough

return being generated by the companys fundamentals to compensate for the

risk you are taking by owning them. This situation occurs most often when the

stock is experiencing great price momentum. The more the stock rises, the

more it attracts investors as the greed response takes hold.


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**Limitation**

Equity refers to the portion of a business assets that was acquired usingits own resources without needing to be indebted to other economic entities.

Equity investments refer to the purchase and holding of the capital stock shares

of corporations, which often represent ownership in those businesses. Valuating

a business equity investments in other businesses, meaning to gauge their value

and then record it, is performed using either the cost method, the equity method

or consolidated financial statements. No single one of these methods is superiorto the others in all situations and each possesses its own limitations.

Limitations on Share Ownership and Limitations on the Ability of Our

Stockholders to Effect a Change in Control of Our Company May Prevent

Takeovers That are Beneficial to Our Stockholders . One of the requirements

for maintenance of our qualification as a REIT for federal income tax purposes

is that no more than 50% in value of our outstanding capital stock may be

owned by five or fewer individuals, including entities specified in the Internal

Revenue Code, during the last half of any taxable year. Our charter contains

ownership and transfer restrictions relating to our stock primarily to assist us in

complying with this requirement; however, the restrictions may have the effect

of preventing a change of control, which does not threaten REIT status. These

restrictions include a provision that generally limits a person from beneficiallyowning or constructively owning shares of our outstanding equity stock in

excess of a 9.9% ownership interest, unless our board of directors exempts the

person from such ownership limitation, provided that any such exemption shall

not allow the person to exceed 13% of the value of our outstanding equity stock.

These provisions may have the effect of delaying, deferring or preventing

someone from taking control of us, even though a change of control might


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involve a premium price for our stockholders or might otherwise be in our

stockholders best interests.

Under the terms of our shareholder rights plan, our board of directors can, in

effect, prevent a person or group from acquiring more than 15% of the

outstanding shares of our common stock. Unless our board of directors approves

the persons purchase, after that person acquires more than 15% of our

outstanding common stock, all other stockholders will have the right to

purchase securities from us at a price that is less than their then fair market

value. Purchases by other stockholders would substantially reduce the value and

influence of the shares of our common stock owned by the acquiring person.Our board of directors, however, can prevent the shareholder rights plan from

operating in this manner. This gives our board of directors significant discretion

to approve or disapprove a persons efforts to acquire a large interest in us.

Section 382 of the Internal Revenue Code generally requires a corporation to

limit the amount of its income in future years that can be offset by historic

losses, i.e. net operating loss (NOL) carry forwards and certain built-in losses,

after a corporation has undergone an ownership change. In this issue of the Tax

Insight we will provide an overview of the Section 382 limitation and valuation

considerations with respect to the calculation of the Section 382 limitation.

SECTION 382 BASICS

A loss corporation is a corporation that is entitled to use a tax attribute

carryover, such as an NOL, or a corporation with a net unrealized built-in loss.

The following basic example shows the application of Sec. 382:

Alpha Corporation is a highly suc cessful corporation wishing to acquire 100%

of the stock of an unrelated company,


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Zeta Corporation.

Zeta Corporation is a private company with valuable IP which was fundedwith several rounds of preferred financing.

Zeta Corporation has generated ne t operating losses during every tax year

since inception. Thus, it is a loss corporation.

After the acquisition, Section 382 will limit the amount of Zeta NOLs

available to offset the groups future taxable

income. In addition, the Zeta NOLs may be subject to additional Section 382

limitations caused by earlier ownership changes incurred during the rounds of

financing.

The two major components of Sec. 382 are ownership change and limitation.An ownership change occurs if immediately after an owner shift or an equity

structure shift, there is a greater than 50% change in the value of the stock

owned by five percent shareholders during the testing period (generally three

years). An ownership change is triggered by the purchase and sale, redemption,

or new issuance of stock.

The factors which influence the value of shares can be broadly classified

into two groups- internal and external factors. They are stated below-

(i) Internal factors:

1. Net worth of Assets (realizable value of all assets minus all liabilities)

2. Earning capacity of assets


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3. Return on investments

4. Profit after tax

5. Profit available to equity shareholders

6. Earnings per share

7. Dividend per share or Rate of dividend.

(ii) External Factors:

1. General economic condition of the country.

2. Political and social environment.

3. International economic scenario.4. International political environment.

5. Demand for shares.

6. Growth prospect of the industry.

7. Transparency in information flow.

8. Insider trading

9.General impulse in capital and securities market.10. Investors education and their perspective towar ds capital market.


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57

**Suggestions**

Before determining whether the price of the stock-listed shares reflects

their fair value, let us consider the issue of different levels of the value. Thus,

from the perspective of shareholders of stock-listed companies. This approach

seems to be further substantiated by the analysis of premiums paid by investors

as they call tender offers for selling shares during which a purchase of a

controlling stake is planned. Such premiums reflects a difference between the

level of the liquid minority interest and the level of the controlling stake, or, in

some instances, the level that comprises the synergy-arising benefits (e.g.

obtainable by investors after taking over control) (level 1) or the irrational value

(e.g. taking into consideration investors sentiment).

Use form IHT35 to claim relief when you sell 'qualifying investments'

that were part of the deceased's estate at a loss within 12 months of the date of

death. Qualifying investments are general shares or securities listed on a

recognized stock exchange and/or holdings in authorized unit trusts. You need

to include all qualifying investments sold, not just those sold at a loss.

Shares and Assets Valuation (SAV) is a specialist area within HM

Revenue & Customs (HMRC) based in Nottingham. In addition to valuing

unquoted shares we also value intangible assets (intellectual property,

trademarks, patents, goodwill etc), foreign shares, foreign residential property,

bloodstock, chattels (things like antiques, art and jewellery), boats, aircraft and a

whole range of other assets. When the open market value of any of these assets

is relevant to your tax affairs, your Tax Office may instruct SAV to consider

and, if necessary, negotiate that value with you. Depending on the

circumstances, you may be able to ask SAV to consider the value once the

transaction has occurred and before you file your return, using the Post

Transaction Valuation Check (PTVC) service.
http://www.hmrc.gov.uk/shareschemes/shares-valuation.htm#7http://www.hmrc.gov.uk/shareschemes/shares-valuation.htm#7


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58

This page provides some guidance on the points you should consider when

preparing/submitting a valuation of some of the main assets SAV considers. If

you have any general valuation queries, advisers at the enquiry line detailed

below will try to assist where possible. They are only able to provide general

guidance and cannot comment on specific valuations or tell you how to carry

out a valuation.

The basis of valuation for tax purposes

SAV undertakes the valuation of a wide range of asset for all tax purposes. As

there is no active market for most of the assets considered by SAV, decisions

from the Courts over the years have provided guidance.

The correct basis of valuation for tax purposes

The correct basis of valuation for tax purposes is the 'market value' as defined in

the relevant statute. The definition of market value for Capital Gains Tax can be

found in Section 272 of the Taxation of Chargeable Gains Act 1992, for

Inheritance Tax it can be found in Section 160 of the Inheritance Tax Act 1984

and for Stamp Duty Land Tax in Section 118 of the Finance Act 2003.

The date of valuation

In Capital Gains Tax cases the valuation date may be the 31 March 1982 (when

required by Section 35(2) of the Taxation of Chargeable Gains Act 1992), or,

when it is necessary to assess the market value at the date of actual acquisition

or disposal, the date a binding contract was entered into.


59/59

**BIBLIOGRAPHY **

Financial Management by S. M. Inamdar, Everest Publishing house, 12th

Edition 2004.

Investment Analysis and Portfolio Management by Prasanna Chandra,

Tata McGraw Hill

Publishers 1/E, 2002

Google Management Accounting: Theory and Problems, M.Y. Khan, P.K. Jain,

TMH

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