Valuation of Share
A number of parties are interested however in the value of shares and securities and that will include:
- Company shareholders, vendors and directors of the company.
- The existing and prospective shareholders.
- Buyers of a company.
- Transferee and transferor parties, in particular from the point of vision of income tax.
- Income tax department.
In this valuation, it is essential to look at a company form as:
i) Quoted company or quoted shares
ii) Unquoted company or unquoted shares
The valuation of shares will also be influenced via ownership of the company. If a company is owned with majority shareholders, its valuation will be different from if it was owned with minority shareholders. In addition, it is essential to value shares due to:
a) It is a requirement of the Company's Act 1948 in respect of quoted investments that should state the investment book value, market value and stock exchange value whereas this differs from market value. Within this case, the Act recognizes the fact such the value of shares may not always be reflected in the stock exchange price and for disclosure purposes, it must be reflected.
i) In respect of unquoted investments the company should state aggregate amount of the book value and also state either the directors valuation that could be different from investors own valuation. The company should also provide specifications of the earnings and dividends attributed to these shares. These are essential to enable interested parties to make their own valuations.
ii) In respect of both unquoted and quoted, shares the company should provide details of the shares so that they can assist in creation of a valuation of those shares judged to be significant for owning the company, namely, if individual investments exceed 10 percent of the issued shares of a given class or whereas the book value of the investment exceeds 10 percent of of the company's assets.
b) Capital transfer reasons that is the capital transfer requires a valuation of shares whether from one person to other or still if they are transferred at the time of death. Valuation date is significant for valuation of companies' properties.
The major difficulties in valuation of shares are as:
- Existence and method of valuation of goodwill.
- Growth in equity.
- Growth in dividend
- Succession of company's management