Determining the fair value of shares is one of the most important steps in investment analysis, corporate restructuring, mergers, fundraising, and regulatory compliance. Professional valuers rely on a combination of financial models, market indicators, and company-specific factors to arrive at an accurate and unbiased share valuation. Platforms like Valuation Mart also support this process by offering structured valuation insights and data.
Key Methods Professionals Use to Determine Share Value
1. Market Price Method
Valuers check the current market price of shares on stock exchanges.
This method works well when the stock is liquid and actively traded.
It reflects real-time demand and supply conditions.
2. Earnings-Based Method (PE Ratio Method)
Here, valuers examine:
- Earnings per share (EPS)
- Industry PE ratio
- Growth expectations
Formula used:
Share Value = EPS × Industry PE Ratio
This approach focuses on the company’s earning potential.
3. Dividend Discount Method (DDM)
This method works for companies that consistently pay dividends.
Valuers determine fair value using:
- Expected future dividends
- Company’s dividend growth rate
- Required rate of return
Formula:
Value = Dividend / (Required Return – Growth Rate)
4. Net Asset Value Method (NAV)
Professionals use this for companies with significant tangible assets.
NAV includes:
- Total assets
- Total liabilities
- Number of shares
Formula:
NAV per share = (Total Assets – Total Liabilities) / Total Shares
5. Discounted Cash Flow Method (DCF)
This method calculates the present value of future free cash flows.
Valuers analyze:
- Future revenue
- Operating costs
- Investment requirements
- Discount rate
DCF provides a highly detailed, long-term view of intrinsic value.
6. Comparable Companies Analysis
Valuers compare the target company with similar companies to evaluate:
- Valuation multiples (EBITDA, Sales, PE ratio)
- Market trends
- Sector performance
This method ensures the valuation aligns with industry standards.
Factors Influencing Share Valuation
Professionals consider several key factors such as:
Risk profile
Revenue growth and profitability
Business model stability
Industry outlook
Market conditions
Corporate governance
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