Every person who intends to invest in any company must know the fair market value or intrinsic value of its shares. The process of calculating the intrinsic value of shares is known as share valuation. The value of shares of listed companies which are traded publicly can be easily accessible but in case of private companies it becomes difficult to evaluate the price of shares and hence valuation becomes really challenging.

Methods of shares/stock valuation

1. The Assets Approach

   The asset approach is based the company’s NAV (Net Asset Value) and shares. Company’s NAV is calculated as difference between the value of net assets and net liabilities of the company.

   Further the derived NAV has to be divided by the number of equity shares of the company.

   This approach is most suitable in the event of Corporate restructuring strategies.

2. The Income Approach

   The Income Approach has generally two methods namely Discounted Cash Flow (DCF) and Price Earning Capacity (PEC) method. Discounted cash flow (DCF) is a method of valuation used to determine the value of an investment based on its projection of return or future cash flows. DCF is the most popular method of valuation. Price Earning Capacity (PEC) method is a method of valuation used to determine the value of share on the basis of its historical earning.

3. The Market Approach

   The Market approach is used wherein, the market value of shares is considered for valuation. This approach is suitable only to the companies whose shares are listed and price of such shares can be obtained from the open market.