Page 286 - AFM Integrated Workbook STUDENT S18-J19
P. 286
Chapter 13
Market based methods
3.1 Stock market value (market capitalisation)
For a listed company, the stock market value of the shares (or 'market
capitalisation') should be the starting point for the equity valuation
process.
The market share price is suitable when purchasing a minority stake.
However, a premium usually has to be paid above this in order to
acquire a controlling interest.
3.2 The price/earnings (P/E) method
Value per share = EPS × P/E ratio
Total equity value = Total post-tax earnings × P/E ratio
The earnings figure should be an expected, future sustainable earnings figure
(so not necessarily just the most recent reported earnings).
When valuing an unlisted company, a proxy P/E ratio from a similar listed
company has to be used.
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