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186 Corporate Finance BRILLIANT’S

tioned, depends upon the value of these shares. ¶{X ¶o eo¶g© ñQ>m°H$ E³gM|O na {bñQ>oS> hmoVo h¢ Vmo ‘yë¶
If these shares are listed on stock exchange, the ñdrH$m¶© hmoVm h¢ {H$ÝVw ¶{X do {bñQ>oS> Zht h¡ Vmo {H$gr
value is acceptable, but if they are not listed,
{d{Y H$m Cn¶moJ H$aHo$ ‘yë¶ {ZYm©[aV H$aZm hmoVm h¡&
then the value is to be determined by using
any of the methods.

Factors affecting Valuation of Shares eo¶g© Ho$ ‘yë¶m§H$Z H$mo à^m{dV H$aZo dmbo H$maH$
There are multiple inter-dependent factors H$B© A§V…{Z^©a H$maH$ h¢ Omo eo¶g© Ho$ ‘yë¶m§H$Z H$mo
which affect the valuation of shares. Out of à^m{dV H$aVo h¢& BZ‘| go Hw$N> g~go ‘hÎdnyU© H$maH$
these, the most important factors are the as-
sets employed and the earnings capacity of the H§$nZr Ho$ à¶w³V AgoQ²>g VWm A{Zª½g j‘Vm h¢& Aݶ Ho$
company. The factors along with the others are gmW BZ H$maH$m| H$mo ZrMo g‘Pm¶m J¶m h¡…
explained below:
1. Motive or purpose: The value of shares 1. ‘mo{Q>d ¶m CÔoí¶… eo¶g© H$m ‘yë¶ ‘mo{Q>d ¶m CÔoí¶
is significantly dependent upon the motive or na ‘hÎdnyU© ê$n go {Z^©a H$aVm h¡ {OgHo$ {bE ‘yë¶m§H$Z
purpose for which the valuation is to be done. {H$¶m OmZm h¡& CXmhaU Ho$ {bE, ¶{X EH$ B§doñQ>a gm‘mݶ
For example, if an investor is simply interested
in liquidating his investment, the stock ex- ê$n go CgHo$ B§doñQ>‘|Q> H$s {b{³dS>oqQ>J ‘| é{M boVm h¡ Vmo
change quotation, if available, is an appropri- ñQ>m°H$ E³gM|O H$moQ>oeZ, ¶{X CnbãY h¡ Vmo EH$ Cn¶w³V
ate value. But if he wants to acquire substan- ‘yë¶ h¡& {H$ÝVw ¶{X dh Aݶ H§$nZr ‘| ‘hÎdnyU© B§Q>aoñQ> ¶m
tial interest or share in another eo¶g© àmßV H$aZm MmhVm h¡ Vmo ‘yë¶m§H$Z
company, valuation is needed as Factors affecting Amdí¶H$ hmoVm h¡ ³¶m|{H$ ~mOma ‘yë¶
the market price may not be suit- valuation of shares
able. Cn¶w³V Zht hmo gH$Vm h¡&
1. Motive or purpose
2. Growth and Potential of 2. d¥{Õ VWm A{Zª½g H$s g§^mdZm…
2. Growth and Potential
earnings: The value of shares is eo¶g© H$m ‘yë¶ ^r H§$nZr H$s d¥{Õ g§^mdZm
of earnings
also influenced by the growth VWm ^{dî¶ H$s g§^mdZm go à^m{dV hmoVm
3. Performance in Com-
potential and future prospects of
parison to other com- h¡& gm‘mݶV… ^{dî¶ H$s bm^Xm¶H$Vm
the company. Generally, future
panies {S>ñH$mC§qQ>J H$s Cn¶w³V Xa H$m Cn¶moJ
profitability is discounted to ar-
4. Dividend policy
rive at the value, using an appro- H$aHo$ ‘yë¶ na nhþ§MZo Ho$ {bE {S>ñH$mC§Q>
5. Financial Ratios
priate rate of discounting. H$s OmVr h¡&
6. Management
3. Performance in Compari- 7. Strong Asset Base 3. Aݶ H§$nZrO H$s VwbZm ‘|
son to other companies: The 8. Bonus and Right n«Xe©Z… eo¶g© H$m ‘yë¶m§H$Z Cgr CÚmoJ ‘|
valuation of shares is also depen-
Shares Aݶ H§$nZrO Ho$ àXe©Z na ^r {Z^©a H$aVm
dent upon the performance of
9. Present earnings
other companies in the same in- h¡& BgH$m H$maU h¡ {H$ H$moB© ^r H§$nZr
10. Restrictive covenants
dustry. This is so because no com- AbJ H$m¶© Zht H$aVr h¡ ~pëH$ ¶h CÚmoJ
11. Tax Incentives/Special
pany works in isolation, rather it
privileges H$m EH$ ^mJ h¡ {Oggo ¶h g§~§Y aIVr h¡&
is a part of the industry to which
it pertains. 12. Market Position
13. Political conditions 4. {S>{dS>|S> nm°{bgr… EH$ CXma
4. Dividend Policy: A liberal
14. Economic conditions
dividend policy may hamper the {S>{dS>|S> nm°{bgr EH$ H§$nZr Ho$ {dH$mg H$mo