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Value of a share means the money value attached to the share.

It may be the book value (value written in the books of


account), or the price at which it can be sold or purchased.
The value of a share is first stated in the Articles of Association of the Company. It is also stated in the Balance sheet of all
companies. The value, stated in the Balance Sheet (or in the books of account and Articles of Association) is called bookvalue of a share. The value of a share (the price) at which it can be sold or purchased is market value which may be more
or less than the book-value.
The problems relating to valuation of shares may be discussed under the following broad heads:
(A) Valuation of Equity Shares; and
(B) Valuation of Preference Shares.

here are various types of value of a share. These are :


1. Book-value
2. Par Value
3. Value at a Premium
4. Value at a Discount
5. Quoted Value
6. Market Value
7. Fair Market Value
8. Intrinsic Value
9. Yield Value
They are discussed below1. Book-value: Book value of share is the value stated in the Articles of Association. It is also
known as Face Value or Nominal value and shown in the books of accounts and Balance Sheet.
2. Par Value: Par value is the nominal or face value of a share.
3. Value at a Premium: If shares are sold or issued at a price more than the book value, then it is
called value at a premium. Suppose shares of Rs. 10 each are sold or issued at Rs. 12 each, this
value of Rs 12 is called value at a premium. Rs. 2 is premium paid on the share of Rs. 10.
4. Value at a Discount: If shares are sold or issued at a price lower than their book or face value,

it is called Value at a Discount. If a share of Rs. 10 is sold at Rs. 9, then it is a case of Value at a
Discount. But for all accounting purpose, the book value of Rs. 10 is recorded.
5. Quoted Value: Quoted value is the value of a share stated by the stock exchange at the end of a
days trade.
6. Market Value: Market value of a share is the price at which the share is purchased or sold in
the market. For all practical purposes, stock exchange quoted price is taken as the market price.
7. Fair Market Value: It is the price of a share which agreed in an open and unrestricted market
between knowledgeable and willing parties dealing at arms length who are fully informed and
are not under any compulsion to transact.
8. Intrinsic Value: Realisable value of total net assets divided by the number of shares
outstanding is the intrinsic value of a share This value is also known as Asset Back Value of
shares.
9. Yield Value: This value of a share is also known as Capitalised value of Earning Capacity.
Normal rate of return in the industry and actual or expected rate of return of the firm are taken
into consideration to find out yield value of a share.

he importance of valuation of shares can be understood from the following:


1. Stock Exchange quoted value often fails to reflect the real worth of share. This is applicable only to ordinary transactions
of shares, when a small number of shares are purchased or sold. Quoted price is not suitable for purchase or sale of major
or controlling shares. Further, all shares are not quoted on Stock Exchange. Hence, valuation of unquoted shares is also
necessary for transferring shares from one person to another person.
2. The importance of valuation of shares also arises in case of amalgamation of companies when there is the need for
having a fair valuation of shares to settle the purchase price.
3. Sometimes preference shares and debentures are converted into equity shares as per the terms of issue. In such case, a

fresh valuation method should be adopted for equity shares to calculate the exchange ratio.
4. To obtain loans from financial institutions shares and debentures can be offered as security. For such a purpose valuation
of shares is essential to assess the real worth of the shares pledged for getting loans.
5. When a Public Sector Undertaking is converted into a limited company by means of public issue of shares of such
undertaking, valuation of these shares becomes essential. When the shares of a limited company are taken over by the
government under a scheme of nationalisation, it is necessary to value the shares of the concerned company in order to
compensate the shareholders.

The factors which influence the value of shares can be broadly classified into two groups- internal and external factors. They
are stated below(i) Internal factors:
1. Net worth of Assets (realisable value of all assets minus all liabilities)
2. Earning capacity of assets
3. Return on investments
4. Profit after tax
5. Profit available to equity shareholders
6. Earnings per share
7. Dividend per share or Rate of dividend.
(ii) External Factors:
1. General economic condition of the country.
2. Political and social environment.
3. International economic scenario.
4. International political environment.
5. Demand for shares.
6. Growth prospect of the industry.
7. Transparency in information flow.
8. Insider trading
9.General impulse in capital and securities market.
10. Investors education and their perspective towards capital market.