Methods of Stock Valuation

Top » About M&A » Methods of Stock Valuation

Methods of Stock Valuation

The evaluation of a company value is based on the following steps, Objective of Evaluation =〉 Business Analysis =〉 Selection of Valuation Method

Objective of Evaluation

The valuation process first started with verifying the objective of evaluation, as the result of valuation varied from what basis we selected and what input value we used.

For instance, the approach we choose to a client’s intention is only want to sell all his stake in a M&A deal, or the deal is meant to a long-term friendly relationship with a start of
mutual exchange of share, our result do makes different!

Business Analysis

When evaluating a company, one must take its business condition into account.

For instance, we have to answer and investigate the following,

  • Is market value available?
  • Is there any stock price of listed companies available in the similar business?
  • what are the transaction example of competitor companies in the said industry?
  • Does any one hold a dominant stake in the company?
  • How about the future growth of the company?
  • What are the relative advantages compared with its competitor companies?
  • The trustworthy of the business plan
  • Estimated value of its asset holding
  • taxation, etc.

Selection of Valuation Method

To suits the above obejective and business condition, we may use the following methods to evalaute a company value.

  • Transaction Example Method
    1. Market Transaction Price or similar case
    2. Transaction example in the same industry
    3. Comparison to similar transaction in similar industry
    4. Comparison of P/E Ratio
  • Net Asset Value Method
    1. Book Value of the net asset
    2. Market Value of the net asset
    3. Market Value plus Rights (Including the profitability)
  • Profit-Payback Method
    1. Profit-Income approach
    2. Discounted Cashflow approach
    3. Exercise of Warrant/Options
  • Dividend-Payback Method
    1. Dividend approach