Shares, being an object of purchase and sale, have their own value. When describing the value of a share, its actual and nominal prices are distinguished. The par value is the price of the share at the first issue. It is indicated on the share itself, and based on it, dividends are calculated.
Instructions
Step 1
When a share enters the stock market, its actual price may differ from the nominal one, both upward and downward. This can be facilitated by a variety of factors: the path that the company has chosen to issue shares (independently, through a credit institution), how well known the company is, and others.
Step 2
After the initial placement and execution of a deal with a share, it goes to the secondary market, where its price will depend on the investors' expectations of dividends (on the company's financial position, the decision on the amount of dividends, the company's risks), as well as market situations (inflation rate and bank interest, supply and demand in the market, the situation in the economy as a whole).
Step 3
The market price of a share is called its rate. There are several methods for determining it. The most common is costly. It is based on the valuation of an enterprise through its net assets, i.e. the value of assets less liabilities attributable to one share is determined. In other words, the net assets of the company are calculated, divided by the number of shares outstanding.
Step 4
The income-based method of determining the market value of shares is based on the principle that the present value of the property is determined by the future cash receipts calculated to date. To calculate the value of a share, the following formula is used: PV = S / (1 + r) n, where PV is the current value of the share, S is the value of the share planned for the future, r is the interest rate on a similar financial asset, n is the number of periods (month, year).
Step 5
The comparative approach involves the use of three methods for determining the market value of a share. The peer-to-peer method is based on comparing the performance of a company with the performance of other listed firms. This takes into account such indicators as the ratio of price to revenue, taxable profit, cash flow, book value.
Step 6
The transaction method focuses on the prices of the business or the acquisition of a controlling stake in general. The method of industry coefficients is based on the use of price ratios and other parameters specific to the industry, for example, the number of hotel beds, transport capacity, etc. These ratios are determined on the basis of statistical observations of the relationship between the price of a firm's capital and production and financial indicators.
