Methods of valuation of shares

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2018-03-21 06:41:19

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To Correctly anticipate potential stock direct Deposit of their returns. If there is no confidence in their own skills assessment, you should entrust this matter to professional market participants. Their experience and knowledge will help you to invest and increase the funds.

Methods of evaluation of shares: for investors and issuers parties

Analysis of the potential of the securities is subject to investment in the company. The correct assessment depends on the level of return and dividends. In the assessment revealed the investment potential of the company, the best time for purchases and sales.

the Level of profitability depends on correctly predicting

Basic concepts

The Company issues shares to generate additional income from their sales. For this purpose is the valuation of shares. At the same time, their liquidity and the level of expected income depends on the prospects and growth of the company. Most of the stocks did not have a specific expiration date. But the minimum period shall be not less than one year. The default is valid as long as the issuing company conducts business activities.

There are two types: common and preferred. Ordinary shares have the following properties:

  1. After the purchase the owner obtains the right to participate in the meeting of shareholders to vote on certain decisions.
  2. Payment for shares are made after you have made payments on preferred shares.
  3. Between a common shares are divided into classes A and B. the First type has advantages in the order of payment.

Factors that affect the determination of the value

Valuation of shares depends on such key factors as supply and demand. The best is the price that buyers are willing to pay. However, this method may not be objective. The reason for that are other, external factors.

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the Choice of valuation method depends on the goals

According to experts, the shares of Russian companies on the securities market are sold at heavily discounted prices. The cause is political instability, unclear prospects for individual sectors and sanctions against the country. This leads to the fact that investors are reluctant to invest. In estimating the cost shares of these factors are carefully analyzed.

Liquidity

Cost of shares requires consideration of liquidity currently and in the future. Under the liquidity necessary to understand the opportunity to implement them at any time. According to this criterion the shares are divided into three echelon.

  • “Blue chip” shares of leading companies, monopolies. They have stable, good prospects, which eliminates large risks. Most investors try to invest in “blue chip”.
  • Second tier includes companies that have good potential. Professionals clearly visible to their prospects. From a financial point of view, have positive forecasts. Despite the higher level of risk, these companies also have investment appeal.
  • On the third tier are companies that have recently begun operating in the market. Their prospects are unknown. Deposits are the most risky.

Thus, it is impossible to overlook that the market conditions are also one of the leading factors in the valuation of the shares.

Population

Despite the complexity of the theory of the stock market, savvy investors are able to calculate in advance the profitability of the shares with mathematical precision. But at the same time, most novice investors make mistakes in investing, focusing on shares of companies that for several years traded in the market. Here arises the need of a more detailed study of the methods of assessment regardless of the current conditions.

Risky to buy shares at the peak price

From this point of view, there are two types of assessment: technical and fundamental analysis.

Fundamental analysis

If you follow the principles of fundamental analysis, the investor should study all the information available about the company. The analysis is subjected to all: accounting reports, tax system, production technology, logistics and the planned projects of the company position in the market. Not overlooked trends of the industry in which specializiruetsya the company, the management strategy in respect of innovations in the industry and not only. If the results of such an analysis it turns out that the company has potential, then the decision on purchase of shares.

Technical analysis

An Important question-at what point to buy stocks. As above mentioned, the stock is at the peak of relevance have a tendency to decrease in quotations. There is a need to calculate the exact time of the purchases and sales. This will help technical analysis. By studying the graph of the growing popularity of the action. Optimum time is the period when the stock price decreases and approaches a certain level, the language of the stock market players support line.

best time to buy - lower level

When selling you should alsographics. If the cost is increasing and approaching the peak level, you should implement the action.

But such a policy more characteristic of market speculators. Regardless of the actual potential of the shares they sell them when there is a demand, and buy when the actual proposal.

What methods of evaluation preferred?

The methods of valuation of shares depends on what the purpose of the assessment. There are interests of two parties: the investor and the issuing company. First interested in the stock returns. The second side is interested in attracting additional funds not only to the current activity, but perhaps in future projects.

In addition, the valuation of shares held in the restructuring of enterprises in transactions, for the loan in the Bank for the transfer of shares to third parties and mainly to demonstrate the company's prospects.

the validity of the shares is measured a few years

In all cases, the market value of shares held 5 methods. They are as follows:

  1. Nominal. The stock value with this method must be equal to 25 % of the share capital or less. Thus for each stock, the amount should be the same. The total amount of issued stocks at the preset value must not exceed the amount of the share capital.
  2. Market approach. The cost of this method will differ from the previous ratio. Here the reference is supply and demand. If the company is stable – that the valuation of shares will give her great perspective. Conversely, if the unstable situation of the company shares are cheaper.
  3. The Carrying value. The ratio will be known, if you take the amount of the net assets and divide by the number of shares. This method is applicable, when you have a merger.

Interesting practical point: in the West, companies are valued higher than their accounting performance. In Russia, the opposite – the leading factor is the financial performance. This is due to the lack of information for other methods.

  1. Valuation of shares at the liquidation method. Applies the residual principle. Dividends will accrue once the company sell the assets at a bargain price, will pay to the counterparties and will pay on preferred shares. Here, the decisive factor for the profitability of stock is the liquidation value of the enterprise. Note that the order of payments to affiliated companies and persons set by law. This list of shareholders is not the only role that gives rise to certain risks for the investor.
  2. Investment involves reference to the value that an investor considers optimal. But his rating should not be unfounded. He must justify such a cost and lead analysis results and other arguments.

Which method to choose?

The assessment of the shares of the company, in particular the method of valuation depends on market quotations. If quotes are at the peak or closer to it, we should calculate the weighted sum on the date of the assessment. In the opposite case, when stocks are low indicators, to assess more complicated. In such cases, it becomes relevant not evaluation of the company's shares and the determination of the value of the entire enterprise.

Note that these methods are not exhaustive. In addition, there are ways in which the main role is played by financial performance.

Valuation of shares when such methods will be as follows:

  • Calculation of net asset value in circulation.
  • Analysis of the capital market.
  • Discounting the financial flows.
  • Mathematical weighting.
  • Capitalization of income.

Practical application methods

The Cycle of liquidity of the shares may vary from several months to several years. Not to be left in loss from investments, you should bet on a stock with long term. There are two valid arguments:

  1. In the long term involves less speculators, courses can be predicted with higher accuracy.
  2. Thanks to steady growth they bring more profit. From this point of view, certain shareholders holding them to half a century.
There are stocks, which are kept for decades

How to invest in shares?

The Investor is absolutely free in his preferences, even if assessment of stake in promises positive results. Among the Russian investors popular stocks of the Western developing companies. This is due to their stability.

The same pattern in the West, only with the orientation, on the contrary, - to Russia. It is believed that Russian companies make more profit in the short term. This trend allows them to invest significant amounts in domestic companies.

Given the fact that the stock market requires deep knowledge, experience and many other conditions, some investors do not risk to engage in self-rating of the shares. They transfer funds in a trust or act through special funds.

Stock Management

By default, the purpose of buying shares is clear-making a profit. But one of the main rules of investment States – should not invest all funds in the shares of one company. This approach is due to risk, independent from the investor or fromproduced by the company.

After the assessment of the company's shares, is a classic strategy. Her main criteria is as follows:

  • If the purpose of investment is safety of funds you should bet on “blue chip”. Their number is not limited. Optimal – from 3 to 5 depending on the total amount of investments.
  • If the investor is willing to take risks for the sake of obtaining more income, you should look towards shares of the second and third tier. The following proportions: 50% - "blue chips" of the remaining 50% should be distributed between the second and third echelons.

With this approach, the investor is insured against big losses: if the third tier fell short of forecasts, the latter can compensate for the losses.

Participants of the securities market can accurately predict the stock price

Conclusion

The securities Market as a separate economic sector formed a long time ago. If before it was only given to person with special training in the relevant economic environment at the present time access is for everyone else. This help information technology, the development of the Internet and availability of information. Thanks to them, the market valuation of the shares and further deal with it even novice investors.

Input the amount in the investment market is not controlled by anyone. Depending on their own capabilities, every trader or investor has the right to risk any convenient amount.


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Alin Trodden - author of the article, editor
"Hi, I'm Alin Trodden. I write texts, read books, and look for impressions. And I'm not bad at telling you about it. I am always happy to participate in interesting projects."

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