Question
Explain the various methods used for valuation of equity shares. How is the intrinsic value
of a share determined?
05 Aug 2026
Answer :
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Valuation of equity shares means determining the fair or reasonable value of a company’s equity shares. Since equity shares do not have a fixed return or maturity period, their valuation is more complex than that of preference shares or debentures. The value of an equity share depends on factors such as expected earnings, dividends, growth prospects, risk, and the financial position of the company. Various methods are used for valuation. The Net Asset Value Method determines the value of an equity share on the basis of the net assets of the company. Under this method, the fair value of all assets is calculated and the outside liabilities and preference shareholders’ claims are deducted. The remaining amount represents the net assets available to equity shareholders. The value per equity share is calculated as: Value per Share = Net Assets Available to Equity Shareholders / Number of Equity Shares This method is particularly useful for companies whose assets constitute an important part of their value. The Yield Value Method values shares according to the expected rate of return or yield. The
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