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Chapter 20
Valuing business and financial assets
Valuations of share in both public and private companies are needed for several
purposes by investors including:
to establish terms of takeovers and mergers
to be able to make ‘buy and hold’ decisions
to value companies entering the stock market
to establish values of shares held by retiring directors, which the articles of the
company specify must be sold
for fiscal purposes (capital gains tax, inheritance tax)
divorce settlements, etc.
1.1 Market capitalisation
Market capitalisation of public companies = current share price × number of shares in
issue
share prices are constantly moving
a premium may be paid if purchasing a controlling interest
1.2 Real worth of a company
Ultimately the real worth of a company will only be known once a
purchase has been made after negotiation between the two parties.
The valuation methods in this chapter give figures to be used as starting
points for the negotiations.
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