You are on page 1of 80

APPROACHES

TO EQUITY VALUATION


 
   
      

           


  

  

 

          


                



 !


 

"#$ #$ %& '()%#*+ %",% %"( $%-.+ /)($(0%(. 1+ Arti Sharma %& Thakur Institute of
Management Studies & Research #0 /,)% '&2/3(%#&0 &*Post Graduation in Diploma
Business management-0.()Approaches to Equity Valuation4",$1((0.&0(-0.()
2+5-#.,0'(#0%"(+(,) !1,%'"

"()&6('%#$#0%"(0,%-)(&*&)#5#0,37&)8%",%",$0&%$&*,)1((0$-12#%%(.*&),0+
&%"() '&-)$( #0 %"#$ #0$%#%-%( &) ,0+ &%"() #0$%#%-%( (*()(0'( &* 7&)8 ,0. )(3,%#9(
$&-)'($&*#0*&)2,%#&0",9(1((05#9(0,%%"((0.&*%"(/)&6('%

#50,%-)(&*%"(,0.#.,%(

&)7,).(.%")&-5"%"(($(,)'"-#.(

#50,%-)(&*%"(-#.(

)&*(", &.#


 
 
&(0.(,9&)#$'&2/3(%(7#%"&-%,'80&73(.5#05%"&$(7"&",9("(3/(.%&2,8(%"#$
/)&6('% , $-''($$

$ $-'" 7&-3. 3#8( %& %",08 ,33 %"&$( 7"& ",9( "(3/(. 2( %&

'&2/3(%(%"#$/)&6('%
#)$% #% #$ &-) /3(,$-)( %& %",08 )

&"&68,)  #)('%&) ",8-) 0$%#%-%( &*

,0,5(2(0%%-.#($($(,)'"*&)5),0%#05-$%"(&//&)%-0#%+%&/)($(0%&-%/)&6('%
)(/&)%:; //)&,'"($%&<-#%+,3-,%#&04
(=/)($$ 2+ "(,)% *#33(. 5),%#%-.( %& "&0&),13( )&* $ (", &.# )&6('%
&&).#0,%&) (0%&)7"&&**()(.,33%"(/&$$#13(,$$#$%,0'(.-)#05&-).(9(3&/#05
/()#&. ,0. *&) %"( #0%()($% $"( %&&8 #0 $&)%#05 &-% &-) .#**#'-3%#($ ,0. &**()#05 -$
5-#.,0'('&0$%,0%(0'&-),5(2(0%,0."(3/
7&-3. 3#8( %& %",08 ,33 %"( *,'-3%#($ &* ",8-) 0$%#%-%( &* ,0,5(2(0% %-.#($ 
($(,)'" %"(+ /)&9#.(. 2( 7#%" %"( 0('($$,)+ #0*&)2,%#&0 ,0. ,.9#'( ,0. 2,0+
%",08$ ,)( .-( *&) %"( $,2( "#$ $%-.+ '&-3. 0&% ",9( 1((0 $-''($$*-3 7#%"&-% %"(
9,3-,13(#0/-%$&*2+'&33(,5-($

 

"+/&%"($#>(&*$&-0.#09($%#05#$%",%,0#09($%&).&($0&%/,+2&)(*&),0,$$(%%",0
#% #$ 7&)%" "#$ $%,%(2(0% 2,+ $((2 3&5#',3 ,0. &19#&-$ 1-% #% #$ *&)5&%%(0 ,0.
)(.#$'&9()(.,%$&2(%#2(#0(9()+5(0(),%#&0,0.#0(9()+2,)8(%"()(,)(,0-21()
&**,'%&)$%",%,**('%,$%&'8?$/)#'(,0.#%$9,3-(%&#09($%&)$

,3-,%#&0/3,+$,8(+)&3(#02,0+,)(,$&**#0,0'(#0'&)/&),%(*#0,0'(#02()5()$
,0. ,'<-#$#%#&0$ ,0. #0 /&)%*&3#& 2,0,5(2(0% "()( ,)( %")(( 1,$#' %"&-5" 0&%
2-%-,33+ (='3-$#9( ,//)&,'"($ %& (<-#%+ 9,3-,%#&0 "( $#2/3($% 2&.(3 *&) 9,3-#05
(<-#%+ #$ %"( .#9#.(0. .#$'&-0% 2&.(3  %"( 9,3-( &* , $%&'8 #$ %"( /)($(0% 9,3-( &*
(=/('%(..#9#.(0.$&0#%

"($('&0.2&.(3#$.#$'&-0%(.',$"*3&79,3-,%#&07"()(',$"*3&7$,)(.#$'&-0%(.
,% , )#$8,.6-$%(. .#$'&-0% ),%( %& ,))#9( ,% ,0 ($%#2,%( &* 9,3-( "( ,0,3+$#$ ',0 1(
.&0( /-)(3+ *)&2 %"( /()$/('%#9( &* (<-#%+ #09($%&)$ 1+ .#$'&-0%#05 (=/('%(. ',$"
*3&7$ %& (<-#%+ ,% %"( '&$% &* (<-#%+ &) #% ',0 1( .&0( *)&2 %"( 9#(7/&#0% &* ,33
'3,#2"&3.()$#0%"(*#)21+.#$'&-0%#05(=/('%(.',$"*3&7$%&%"(*#)2,%%"(7(#5"%(.
,9(),5('&$%&*',/#%,3

"(%"#).2&.(3#$)(3,%#9(9,3-,%#&07"()(%"(9,3-(&*%"((<-#%+#0,*#)2#$1,$(.
-/&0 %"( /)#'#05 &* '&2/,),13( *#)2$ )(3,%#9( %& (,)0#05$ ',$" *3&7$ 1&&8 9,3-( &)
$,3($


9(),33%"()($-3%$&*%"((2/#)#',3,0,3+$#$#0.#',%(%",%7#.(3+-$(.2&.(3$*&)(<-#%+
9,3-,%#&0,)( #9#.(0. #$'&-0% &.(3,0.)((,$"3&7%&%"(<-#%+
-%%"(2,#0
<-($%#&0,)#$($%",%7"#'",//)&,'"7(7#33-$( *%"()(#$,/)&1,1#3#%+%",%,*#)2',0
1(%,8(0&9()&)#%$2,0,5(2(0%'",05(.%"(2,)8(%/)#'(7#33)(*3('%%",%3#8(3#"&&.
,0.%"(,//)&/)#,%(1(0'"2,)8%&-$(#$%"(9,3-(*)&2%"(2&.(3 $'",05($#0
'&)/&),%('&0%)&31('&2(2&)(.#**#'-3%(#%"()1(',-$(&*,*#)2@$$#>(,0.A&)3(5,3&)
2,)8(% )($%)#'%#&0$ &0 %,8(&9()$ %"( 9,3-( *)&2 %"( .#9#.(0. .#$'&-0% 2&.(3 7#33
/)&9#.(%"(,//)&/)#,%(1(0'"2,)8*&)'&2/,)#$&0

-% 7"+ %"#$ (<-#%+ 9,3-,%#&0 #$ %&& #2/&)%,0% .($/#%( &* *,33(0 $%&'8 2,)8(% $ 7(
$((0 #0 %"( 3,$% 2&0%" , $",)/ .)&/ #0 %"( /)#'($ &* $%&'8$ 7&)3.7#.( "($(
2&9(2(0%$",9(",.,0#2/,'%#0 0.#,,3$&&7(9()2,0+,0,3+$%$,+$%",%-))(0%
(<-#%+9,3-,%#&0$,)('"(,/$&%"#$#$%"(1($%%#2(%&,''-2-3,%((<-#%+


  

 ; //)&,'"($%&<-#%+,3-,%#&04




  

"(&16('%#9($&*%"($%-.+,)(,$*&33&7$B
3 =/3,#0%"(2(%"&.&3&5+*&).(%()2#0#05%"(9,3-(&*%"(*#)2,0.%"(9,3-(&*
(<-#%+
3 "&7%"(-$(&*%"(/)($(0%9,3-('&0'(/%$#0%"(9,3-,%#&0&*$",)($,0.1&0.$
3 (,)0 ,1&-% %"( 3#08,5( 1(%7((0 %"( $",)( 9,3-($ (,)0#05$ ,0..#9#.(0.$ ,0.
%"()(<-#)(.),%(&*)(%-)0&0%"($",)(
3 #0,33+%&80&7%"(9,3-,%#&0&* 0.#,0$%&'82,)8(%



0&).()%&(=,2#0(%"(.#**()(0%<-#%+,3-,%#&0 &.(3$$('&0.,)+2,)8(%.,%,",$
1((0-$(.,)#&-$/),'%#',3/)&13(2$",9(1((0,0,3+>(.*&)$(3('%#05$%&'8#0*())#05
2,)8(%(=/('%,%#&0)(0.()#05*,#)0($$&/#0#&0(%'

 
"()( 7,$ 0& 3#9( .,%, ,9,#3,13( *&) (<-#%+ 9,3-,%#&0 -( %& 9,)#&-$ ,//)&,'"($
,9,#3,13( #% 7,$ 0&% /&$$#13( %& ,))#9( ,% , $#053( 9,3-,%#&0 &3,%#3#%+ #0 %"( 2,)8(%
('&0&2+(<-#%+9,3-,%#&0&*2,0+&)5,0#>,%#&0$#$0&%-/%&%"(2,)8

 



 "



C



C

E
F

D
!
!
!
!C
!
!E
!F



 !

0%)&.-'%#&0
%)-'%-)(&*<-#%+ ,)8(%#0 0.#,
)&7%"&* 0.#,0<-#%+ ,)8(%



C

"  

0%)&.-'%#&0
(,0#05:,3-,%#&0<-#%+,3-,%#&0
(,%-)($&*<-#%+,3-,%#&0
((.&*<-#%+,3-,%#&0
&3(&*<-#%+,3-,%#&0

(0(*#%$&*<-#%+,3-,%#&0
<-#%+9,3-,%#&09A$#)2,3-,%#&0
()2$-$(.#0<-#%+,3-,%#&0
<-#%+,3-,%#&0 &.(3$
)($(0%,3-( (%"&.
 #9#.(0. #$'&-0% &.(3
)((,$"3&7%&%"(<-#%+
 $$(%
,$(. //)&,'"
(3,%#9(,3-,%#&0 //)&,'"
%"() //)&,'"
    "
   
  
  

D
!



C
E



C
D
E
F





  

"

"( 0.#,0<-#%+ ,)8(%#$,3$&%"(&%"()0,2(*&) 0.#,0$",)(2,)8(%&) 0.#,0$%&'8


2,)8(%"((<-#%+1)&8(),5(#0.-$%)+#0 0.#,#$&0(&*%"(&3.($%#0%"( $#,)(5#&0
0.#, ",. ,0 ,'%#9( $%&'8 2,)8(% *&) ,1&-% E +(,)$ %",% /3,+(. , $#50#*#',0% )&3( #0
.(9(3&/#05 )#$8 2,)8(%$ ,$ ,3$& /)&2&%#05 (0%()/)#$( ,0. $-//&)%#05 %"( 5)&7%" &*
#0.-$%)+ 0.#, ",$ 1((0 &0( &* %"( 1($% /()*&)2()$ #0 %"( 7&)3. ('&0&2+ #0 )('(0%
+(,)$ 1-% ),/#.3+ )#$#05 #0*3,%#&0 ,0. %"( '&2/3(=#%#($ &* )-00#05 %"( 7&)3.?$ 1#55($%
.(2&'),'+,)(/)&9#05'",33(05#05

  "

"( 0.#,0 2,)8(% &* (<-#%#($ #$ %),0$,'%(. &0 %"( 1,$#$ &* %7& 2,6&) $%&'8 #0.#'($
,%#&0,3%&'8='",05(&* 0.#,%.,0."(
&21,+%&'8='",05(
 0
%()2$&*2,)8(%',/#%,3#>,%#&0%"()(,)(&9()E'&2/,0#($#0%"(
'",)%3#$%7#%"
%"((3#,0'( 0.-$%)#($#2#%(.,%%"(%&/"(G%&.,+",$)&$(*)&23(9(3$
%&D3(9(3$/)&9#.#05,/)&*#%,13(1-$#0($$%&,33%"&$(7"&",.1((0#09($%#05#0%"(
0.#,0<-#%+ ,)8(%"()(,)(,1&-%$%&'8(='",05($#0 0.#,7"#'")(5-3,%($%"(
2,)8(%%)(0.$&*.#**()(0%$%&'8$
(0(),33+ %"( 1#55() '&2/,0#($ ,)( 3#$%(. 7#%" %"(  ,0. %"(
 1-% %"()( #$ %"(
 &) %"( 9() %"( &-0%() ='",05( &* 0.#,7"#'" 3#$%$ %"( 2(.#-2 ,0. $2,33
$#>(.'&2/,0#($"()(#$%"(
&)%"(('-)#%#($,0.='",05(
&,).&* 0.#,7"#'"
$-/()9#$($%"(*-0'%#&0#05&*%"($%&'82,)8(%$#0 0.#,

%&'8 2,)8(%$ 1(',2( #0%(0$(3+ %('"0&3&5+ ,0. /)&'($$ .)#9(0 5#9#05 3#%%3( $'&/( *&)
2,0-,3 #0%()9(0%#&0 %",% ",$ 1((0 %"( $&-)'( &* 2,)8(% ,1-$( #0 %"( /,$% 3('%)&0#'
%),.#05 .#5#%,3 '()%#*#',%#&0 $%),#5"% %")&-5" /)&'($$#05 (3('%)&0#' '&0%),'% 0&%($

&03#0(1)&8#05",9((2()5(.,$2,6&)%)(0.$#0%('"0&3&5+#$82,0,5(2(0%1(',2(
)&1-$%)(.-'#05%"()('-))(0'(&*/,+2(0%.(*,-3%$)&.-'%(=/,0$#&0%&&8/3,'(#0,
$/((.+ 2,00() %&'8 (='",05( )(*&)2$ 1)&-5"% #0 /)&*($$#&0,3 2,0,5(2(0%
$(/,),%#05 '&0*3#'%$ &* #0%()($% 1(%7((0 1)&8()$ ,$ &70()$ &* %"( (='",05($ ,0.
%),.()$A.(,3()$


  "

"(3,$%.(',.(",$1((0(='(/%#&0,33+5&&.*&)%"($%&'82,)8(%$#0 0.#, 0%"(1,'8


&* 7#.( ),05#05 )(*&)2$ #0 )(5-3,%#&0 ,0. 2,)8(% /),'%#'( ,$ ,3$& %"( 5)&7#05
/,)%#'#/,%#&0 &* *&)(#50 #0$%#%-%#&0,3 #09($%2(0% $%&'8 2,)8(%$ #0 0.#, ",9( $"&7(.
/"(0&2(0,3 5)&7%" #0 %"( (,)3+ !!$"($%&'8 2,)8(% ',/#%,3#>,%#&0 #0 2#. #$
0(,)3+ %"( $,2( $#>( ,$ %",% &* %"( 5)&$$ .&2($%#' /)&.-'% ,$ '&2/,)(. %& ,1&-% E
/()'(0%&*%"(3,%%()#0%"((,)3+$ 09($%&)1,$('&0%#0-(.%&5)&7*)&2.&2($%#'
,0. #0%()0,%#&0,3 2,)8(%$ "( 9,3-( &* $",)( %),.#05 7#%0($$(. , $",)/ 6-2/ %&&
&)(#50 #0$%#%-%#&0,3 #09($%2(0% #0 0.#,0 $%&'8 2,)8(%$ $"&7(. '&0%#0-&-$ )#$(
)(,'"#05,1&-%  10#0(,'"&*%"($(+(,)$1(%7((0%&F
0.#,0 (<-#%+ 2,)8(%$ 0&7 &**() #0 ,..#%#&0 %& %),.#05 #0 (<-#%#($ &//&)%-0#%#($ #0
%),.#05 &* .()#9,%#9($ #0 *-%-)($ ,0. &/%#&0$ #0 #0.(= ,0. $%&'8$ $ ,)( $"&7#05
5),.-,35)&7%"H#%"#0*#9(+(,)$&*#0%)&.-'%#&0&*.()#9,%#9($ 0.#,0$%&'82,)8(%$
0&7,)(),08(.*#)$%#0$%&'8*-%-)($,0.*&-)%"#0#0.(=*-%-)($ 0.#,0$%&'82,)8(%$
,)(%),0$,'%#&0#0%(0$#9(,0.%"-$),08,2&05%"(%&/*#9(2,)8(%$#0%"#$)(5,).

-%  &D #$ 9()+ 9&3,%#3( *&) ,33 '&-0%)#($ $%&'8 2,)8(% -( %& %"( 53&1,3 '-($ ,0.
)('($$#&0 #0  %"(
 (0$(= ",. $3-2/(. CFD /&#0%$ &) !I %& D! ! &0
"-)$.,+E ,)'"!*)&2,)('(0%"#5"&*!FC &0C(1)-,)+! %7,$%"(
3&7($%'3&$#053(9(3&*%"(1,)&2(%()#0.(=#02&)(%",0%")((+(,)$

''&).#05%&,5,0,%"   ()#33+0'" -%-,3-0.#%#$9()+#2/&)%,0%%&


,0,3+>( #0*3&7 &* *-0.$ %& 0.#,0 (<-#%+ 2,)8(% ,$ #0')(,$( #0 *-0. #0*3&7 #0 0.#,0
(<-#%+2,)8(%7#33&03+)($-3%#0%&$2,)%),33+#0%"(2,)8(%
&33&7#055),/"$"&7$%"(,0.
'3&$#053(9(3$*&)%"(/()#&.&* -5-$% %&
,0-,)+!

"( 0.#,0$%&'82,)8(%",$*,33(02&)(%",0I#0$#=2&0%"$*)&2#%$,0-,)+D
"#5"JF1&**&)(#50*-0.$",$*3&7(.&-%&*%"('&-0%)+#0%",%/()#&.)(,'%#051&%"%&
$3&7#05('&0&2#'5)&7%",0./()'(/%#&0$%",%%"(2,)8(%7,$&9()9,3-(.










 
   $%,%($)&*($$&) ,2&.,),0
"-$ 9,3-,%#&0 #$ %"( *#)$% $%(/ %&7,). #0%(33#5(0% #09($%#05 ,3-,%#&0 &* , *#)2 &) ,0
(<-#%+,$,5&#05'&0'()0#$%"(1,$#$*&),0+#09($%2(0%(=()'#$(

0&7#057",%,0,$$(%#$7&)%",0.7",%.(%()2#0($%",%9,3-(#$,/)()(<-#$#%(*&)
#0%(33#5(0%.('#$#&02,8#05#0'"&&$#05#09($%2(0%$*&),/&)%*&3#&#0.('#.#05&0%"(
,//)&/)#,%(/)#'(%&/,+&))('(#9(#0,%,8(&9(),0.#02,8#05#09($%2(0%*#0,0'#05
,0. .#9#.(0. '"&#'($ 7"(0 )-00#05 , 1-$#0($$ H#%"&-% &)#5#0,3 9,3-( &0( #$ $(%
*3&,%#05#0,$(,&*),0.&2$"&)%%()2/)#'(2&9(2(0%$,0.5-%*((3#05$

% #$ #2/&)%,0% *&) %"( #0,0'( ,0,5()#0 /,)%#'-3,) ,0. &%"() 2,0,5()#0 5(0(),3 %&
-0.()$%,0.%"(/)&'($$,0.2(%"&.&*9,3-#05(<-#%+&),*#)2"(9,3-,%#&0&*(<-#%+
#$.(/(0.(0%&0%"(1,$#'*#0,0'#,3'&0'(/%$&*#2(,3-(&* &0(+#$8,0.(%-)0
,0.-%-)(,$"3&7

  

"( %()2 ;9,3-,%#&0 ;#2/3#($ %"( %,$8 &* ($%#2,%#05 %"( 7&)%"A9,3-( &* ,0 ,$$(% ,
$('-)#%+ &) , 1-$#0($$ "( /)#'( ,0 #09($%&) &) , *#)2 1-+() #$ 7#33#05 %& /,+ %&
/-)'",$(,$/('#*#',$$(%A$('-)#%+7&-3.1()(3,%(.%&%"#$9,3-(

"()(*&)((<-#%+9,3-,%#&0#$K
"  

 


  
  
0 (<-#%+ 9,3-,%#&0 %,8($ $(9(),3 *#0,0'#,3#0.#',%&)$ #0%& ,''&-0%K %"($( #0'3-.( 1&%"
%,05#13( ,0. #0%,05#13( ,$$(%$ ,0. /)&9#.( /)&$/('%#9( #09($%&)$ ')(.#%&)$ &)
$",)("&3.()$7#%",0,''-),%(/()$/('%#9(&*%"(%)-(9,3-(&*,'&2/,0+,%,0+5#9(0
%#2(
<-#%+ 9,3-,%#&0$ ,)( '&0.-'%(. %& 2(,$-)( %"( 9,3-( &* , '&2/,0+ 5#9(0 #%$ '-))(0%
,$$(%$,0./&$#%#&0#0%"(2,)8(%"($(.,%,/&#0%$,)(9,3-,13(*&)$",)("&3.()$,0.
/)&$/('%#9( #09($%&)$ 7"& 7,0% %& *#0. &-% #* %"( '&2/,0+ #$ /()*&)2#05 7(33 ,0.
7",%%&(=/('%7#%"%"(#)$%&'8$&)#09($%2(0%$#0%"(0(,)*-%-)(
,3-,%#&0 2(%"&.$ 1,$(. &0 %"( (<-#%+ &* , '&2/,0+ %+/#',33+ #0'3-.( , %"&)&-5"
,0,3+$#$&*',$",''&-0%$,$7(33,$,*&)(',$%&)/)&6('%#&0&**-%-)(.#9#.(0.$*-%-)(
(,)0#05$)(9(0-(,0.%"(.#$%)#1-%#&0&*.#9#.(0.$

 "  

&33&7#05,)(%"(*(,%-)($&*<-#%+,3-,%#&0K

3 <-#%+,3-,%#&0#$,"#5"3+$/('#,3#>(./)&'($$

3 #8(&%"(),$$(%$#0*#0,0'(%"(9,3-(&*,$%&'8#$%"()($(0%,3-(&*#%$,$"
3&7?$

3 "(%&%,3(<-#%+&*,'&2/,0+#$%"($-2 &*1&%"%,05#13(,$$(%$,0.#0%,05#13(
<-,3#%#($ ,05#13( ,$$(%$ #0'3-.( 7&)8#05 ',/#%,3 ',$" ,0. #09(0%&)+ ,0.

$",)("&3.()(<-#%+ 0%,05#13(<-,3#%#($&)#0%,05#13(L,$$(%$L2,+#0'3-.(1),0.
/&%(0%#,3%),.(2,)8$,0.$%&'89,3-,%#&0$

3 "(9,3-,%#&02,+,3$&%,8(%"(*#)2@$(0%()/)#$(9,3-(#0%&,''&-0%K%"#$#$
',3'-3,%(. 1+ '&21#0#05 %"( 0(% .(1% /() $",)( 7#%" %"( /)#'( /() $",)(
()*&)2,0'(#0.#',%&)$#0'3-.(%"(/)#'(A(,)0#05$),%#&.#9#.(0.+#(3.,0.%"(
,)0#05$
(*&)( 0%()($% (/)('#,%#&0,0. 2&)%#>,%#&0


0+'&2/,0+-0.()'&0$#.(),%#&0*&)$,3(0((.$/)&*#'#(0%&16('%#9(9,3-,%#&0
7"(%"()#%$$%&'8#$/)#9,%(3+&70(.1+&0(#0.#9#.-,3&)/-13#'3+%),.(.&0&0(
&)2&)(&*%"(2,6&)(='",05($&)#0%"(&9()%"('&-0%()2,)8(%

3 %&'8$ ,)( %+/#',33+ 9,3-(. ,$ /()/(%-,3 $('-)#%#($ ,$ '&)/&),%#&0$ /&%(0%#,33+


",9(,0#0*#0#%(3#*(,0.%"-$',0/,+.#9#.(0.$*&)(9()

 "  

"()(,)($(9(),3)(,$&0*&(7"#'"7(0((.<-#%+,3-,%#&0
3
3
3
3
3
3

0#%#,3-13#'**()
()5(),0. (2()5()
-)'",$(A$,3(&*(<-#%+$%,8(1+6&#0%9(0%-)(/,)%0()$
#<-#.,%#&0
(/,),%#&0
#$#09($%2(0%(%'

  "  

,3-,%#&0#$-$(*-3#0,7#.(),05(&*%,$8$ "()&3(#%/3,+$"&7(9()#$.#**()(0%#0
.#**()(0% ,)(0,$ "(*&33&7#05 $('%#&0 3,+$&-% %"( )(3(9,0'( &* 9,3-,%#&0 #0 /&)%*&3#&
2,0,5(2(0%#0,'<-#$#%#&0,0,3+$#$,0.#0'&)/&),%(*#0,0'(

3     


"()&3(%",%9,3-,%#&0/3,+$#0/&)%*&3#&2,0,5(2(0%#$.(%()2#0(.#03,)5(/,)%1+%"(
#09($%2(0% /"#3&$&/"+ &* %"( #09($%&) ,3-,%#&0 /3,+$ , 2#0#2,3 )&3( #0 /&)%*&3#&
2,0,5(2(0% *&) , /,$$#9( #09($%&) ,$$#9( #09($%&)$ *((3 %",% $#2/3+ #09($%#05 #0 ,
2,)8(%#0.(=*-0.2,+/)&.-'(/&%(0%#,33+"#5"()3&05%()2)($-3%$7"()(,$#%/3,+$
,3,)5())&3(*&),0,'%#9(#09($%&) '%#9#$%#09($%&)$%,8(/&$#%#&0$#0*#)2$%",%",9(,
)(/-%,%#&0*&)/&&)2,0,5(2(0%,0.%"(0-$(%"(#)(<-#%+"&3.#05$%&/-$"*&)'",05(
#0 %"( 7,+ %"( '&2/,0+ #$ )-0 "(#) *&'-$ #$ 0&% $& 2-'" &0 7",% %"( '&2/,0+ #$
7&)%"%&.,+1-%7",%#%$9,3-(7&-3.1(#*#%7()(2,0,5(.7(33

2&05 $('-)#%+ $(3('%&)$ 9,3-,%#&0 /3,+$ , '(0%),3 )&3( #0 /&)%*&3#& 2,0,5(2(0% *&)
*-0.,2(0%,3,0,3+$%$,0.,/()#/"(),3)&3(*&)%('"0#',3,0,3+$%$

3   

"  

,3-,%#&0 $"&-3. /3,+ , '(0%),3 /,)% &* ,'<-#$#%#&0 ,0,3+$#$ "( 1#..#05 *#)2 &)
#0.#9#.-,3",$%&.('#.(&0,*,#)9,3-(*&)%"(%,)5(%*#)21(*&)(2,8#05,1#.,0.%"(

%,)5(% *#)2 ",$ %& .(%()2#0( , )(,$&0,13( 9,3-( *&) #%$(3* 1(*&)( .('#.#05 %& ,''(/% &)
)(6('%%"(&**()

3   

  

"()( #$ , )&3( *&) 9,3-,%#&0 ,% (9()+ $%,5( &* , *#)2?$ 3#*( '+'3( &) $2,33 /)#9,%(
1-$#0($$($ %"#08#05 ,1&-% (=/,0.#05 9,3-,%#&0 /3,+$ , 8(+ )&3( 7"(0 %"(+ ,//)&,'"
9(0%-)(',/#%,3,0./)#9,%((<-#%+#09($%&)$*&)2&)(',/#%,3

3         

"&-5" #% 2,+ $((2 2&$% 9,3-,%#&0$ ($/('#,33+ &* /)#9,%( '&2/,0#($ ,)( .&0( *&)
3(5,3&)%,=)(,$&0$ /,)%0()$"#/",$%&1(9,3-(.7"(0(9(),0(7/,)%0()#$%,8(0
&0&),0&3.&0()(%#)($,0.1-$#0($$($%",%,)(6&#0%3+&70(.",9(%&1(9,3-(.7"(0
%"(&70()$.('#.(%&1)(,8-/&)1-$#0($$($",9(%&1(9,3-(.*&)($%,%(%,=/-)/&$($
7"(0 %"( &70() .#($ H"#3( %"( /)#0'#/3($ &* 9,3-,%#&0 2,+ 0&% 1( .#**()(0% 7"(0
9,3-#05 , 1-$#0($$ *&) 3(5,3 /)&'((.#05$ %"( &16('%#9( &*%(0 1('&2($ /)&9#.#05 ,
9,3-,%#&0%",%%"('&-)%7#33,''(/%),%"()%",0%"(;)#5"%49,3-,%#&0

 "  

%"&)&-5" ,0,3+$#$ &* %,05#13( ,0. #0%,05#13( ,$$(%$ ,33&7$ /)&$/('%#9(


#09($%&)$ $",)("&3.()$ ,0. *#0,0'#,3 2,0,5()$ &* , '&2/,0+ %& &1%,#0 ')#%#',3
/()*&)2,0'(.,%,,1&-%%"('&2/,0+@$1-$#0($$&/(),%#&0$

3 H"(0 ,0 #09($%&) ,%%(2/%$ %& .(%()2#0( %"( 7&)%" &* "() $",)($ 1,$(. &0 %"(
*-0.,2(0%,3$#%"(3/$"()2,8(#0*&)2(..('#$#&0$,1&-%7",%$%&'8$%&1-+&)
$(33

3 ,3-,%#&0'&2/,)($%"(1(0(*#%$&*,*-%-)(#09($%2(0%.('#$#&07#%"#%$'&$%

3 "((<-#%+9,3-,%#&02(%"&.%,8($$(9(),3%+/($&*.,%,#0%&,''&-0%,0.',01(
-$(. ,$ /,)% &* , /)(.#'%#&0 2&.(3 %& .(%()2#0( %"( ('&0&2#' *-%-)( &* %"(
'&2/,0+

3 "( 9,3-,%#&0 ,3$& /)&9#.($ $&2( #0.#',%#&0 &* %"( 3(9(3 &* )#$8 #09&39(. #0
#09($%#05#0%"('&2/,0+

3 "( .(%()2#0,%#&0 &* )#5"% 9,3-( &* (<-#%+ #$ ($$(0%#,3 %& 2,#0%,#0 , 3&05 %()2
$-''($$&*#09($%2(0%

"    

"(9,3-(%"((0%#)(1-$#0($$7#%"1&%",$$(%$#0/3,'(,0.5)&7%",$$(%$K%"#$#$&*%(0
%()2(.*#)2&)(0%()/)#$(9,3-,%#&0

"($('&0.7,+#$%&6-$%9,3-(%"((<-#%+$%,8(#0%"(1-$#0($$,0.%"#$#$',33(.(<-#%+
9,3-,%#&0

"()(*&)(
<-#%+,3-,%#&09,3-(6-$%%"((<-#%+$%,8(#0%"(1-$#0($$
#)2 ,3-,%#&0 9,3-( %"( (0%#)( *#)2 7"#'" #0'3-.($ 1($#.($ (<-#%+ %"( &%"()
'3,#2"&3.()$#0%"(*#)2

  "  

3   

&&89,3-(#$%"(9,3-(,%7"#'",$$(%$,)($"&70#0%"(1,3,0'($"((% %#$,3$&)(*())(.
%&,$0(%7&)%"


&&8 9,3-( &* , 1-$#0($$ )(*()$ %& %&%,3 1&&8 9,3-( &* ,33 9,3-,13( ,$$(%$ (='3-.#05
*#'%#%#&-$ ,$$(%$ $-'" ,$ ,''-2-3,%(. 3&$$($ ,0. .(*())(. )(9(0-( (=/(0.#%-)( 3#8(
,.9()%#$(2(0%/)(3#2#0,)+(=/(0$($'&$%&* #$$-(&*$('-)#%#($0&%7)#%%(0&**3($$,33
(=%()0,33#,1#3#%#($#0'3-.#05/)(*()(0'($",)(',/#%,3

3 

 

"(0&2#0,39,3-(&*,$('-)#%+$%,%(.1+%"(#$$-()&)$%&'8$#%#$%"(&)#5#0,3'&$%&*
%"($%&'8$"&70&0%"('()%#*#',%( 0%"(',$(&*$%&'8'()%#*#',%($*,'(9,3-(#$%"(/,)
9,3-(&*%"($%&'8

3  
,)8(%9,3-()(*()$%&%"(/)#'(,%7"#'",0,$$(%',01($&3.#0%"(2,)8(%"(2,)8(%
9,3-(',01(,//3#(.7#%")($/('%%&%,05#13(,$$(%$&03+ 0%,05#13(,$$(%$#0#$&3,%#&0
2&)(&*%(0%",00&%.&0&%",9(,$,3(9,3-(
,)8(% 9,3-( &* , 1-$#0($$ )(*()$ %& %"( ,55)(5,%( 2,)8(% 9,3-( &* ,33 (<-#%+ $",)($
&-%$%,0.#05
,)8(%9,3-(#$)(3(9,0%*&)3#$%(.'&2/,0#($&03+

3   
"(#0%)#0$#'9,3-(&*,$",)(#$%"(/)($(0%9,3-(&*,33*-%-)(,2&-0%$%&1()('(#9(.&*
%"( &70()$"#/ &* %",% $",)( '&2/-%(. ,% ,0 ,//)&/)#,%( .#$'&-0% ),%( "( #0%)#0$#'
9,3-(#$,$$(%?$%)-(9,3-()(5,).3($$&*%"(2,)8(%/)#'("(.(%()2#0,%#&0&*#0%)#0$#'
9,3-(2,+1($-16('%%&/()$&0,3&/#0#&0,0.9,)+,2&05#0.#9#.-,3,0,3+$%$


3  
,#)9,3-(#$%"(,9(),5(&*1&&89,3-(2,)8(%9,3-(,0.#0%)#0$#'9,3-(

,#),3-(M
&&8,3-(N ,)8(%,3-(N 0%)#0$#',3-(
C

3 "   


#<-#.,%#&0 9,3-( )(/)($(0%$ %"( /)#'( ,% 7"#'" (,'" #0.#9#.-,3 ,$$(% ',0 1( $&3. #*
1-$#0($$&/(),%#&0$,)(.#$'&0%#0-(.#0%"(7,8(&*3#<-#.,%#&0&*%"(*#)2
0&/(),%#&0,3%()2$%"(3#<-#.,%#&09,3-(&*1-$#0($$#$(<-,3%&$-2&*
(,3#>,13(9,3-(&*,$$(%$,0.
,$" ,0. 1,08 1,3,0'( 2#0-$ %"( /,+2(0% )(<-#)(. %& .#$'",)5( ,33
(=%()0,33#,1#3#%#($
2&05,332(,$-)($&*9,3-(%"(3#<-#.,%#&09,3-(&*,$$(%A3#,1#3#%#($#$%"(3(,$%

3  

 

(/3,'(2(0%9,3-(#$%"('&$%&*,'<-#)#05,0(7,$$(%&*',/#%,3-%#3#%+,0.-$(*-30($$

3    
#2(9,3-(&*2&0(+)(*()$%&,'&0'(/%%",%2&0(+,9,#3,13(0&7#$7&)%"2&)(%",0
%"( $,2( ,2&-0% #0 %"( *-%-)( 1(',-$( &* #%$ /&%(0%#,3 (,)0#05 ',/,'#%+ $ %#2( /,$$
%"()( #$ '&$% %& -$#05 2&0(+ "( $&&0() 2&0(+ #$ )('(#9(. %"( 2&)( 9,3-,13( #% #$
1(',-$(#%',01(#09($%(.,0(,)0#0%()($%

"(9,3-(&*2&0(+)('(#9(.%&.,+#$.#**()(0%*)&2%"(9,3-(&*2&0(+)('(#9(.,*%()
$&2( %#2( #0 *-%-)( 1(',-$( &* #0*3,%#&0 )#$8 /()$&0,3 '&0$-2/%#&0 /)(*()(0'(
#09($%2(0%&//&)%-0#%#($
)($(0%,3-(&*2&0(+',3'-3,%(.,$K

)($(0%9,3-(MM
N#0

H"()(B
M/)($(0%9,3-(%&.,+@$9,3-(
M*-%-)(9,3-(,9,3-(&)',$"*3&7$&2(%#2(#0%"(*-%-)(
#M#0%()($%),%(/()/()#&.,0.
0M0-21()&*'&2/&-0.#05/()#&.$
0.ON#0P#$%"('&2/&-0.*,'%&)

3  
"( )(<-#)(. &* )(%-)0#**&-0. 1+ ,/#%,3 $$(% )#'#05 &.(3   (%"&."(
2(%"&.-$(.%&',3'-3,%(,0,//)&/)#,%(.#$'&-0%),%(-$($%"(#09($%2(0%@$1(%,"#$
#$,2(,$-)(&*%"(,2&-0%&*)#$8%",%%"(#09($%2(0%7&-3.",9(
"(.#$'&-0%),%(-$(.#0,  #$B

&)(M)*NQR)2)*

H"()(B
)*M)#$8*)((),%(
)2M(=/('%(.)(%-)0&0%"(2,)8(%,0.
QM1(%,&*%"(',$"*3&7$&)$('-)#%+1(#059,3-(.
"(%()2)2)*#$%"(2,)8(%)#$8/)(2#-2"(%()2QR)2)*#$%"()#$8/)(2#-2
&0%"(',$"*3&7$&)$('-)#%+1(#059,3-(.
*%"($('-)#%#($1(#059,3-(.,)($",)($#%#$-$-,3%&-$(%"((<-#%+)#$8/)(2#-2,0.
%"(1(%,&*%"($",)(,5,#0$%%"($%&'82,)8(%

Example:
('-)#%+",$,1(%,&* E,3'-3,%(),%(&*)(%-)0&*$('-)#%+,$$-2#05%",%*MEI
,0.(=/('%(.2,)8(%)(%-)0MI

Solution:
,%(&*(%-)0(M)*NQR)2)*
MEN EE
M EI

"()(*&)(,%(&*(%-)0(M EI

3 



"( #$'&-0% ,%( -$(. #0 %"( /)($(0% 9,3-( 2&.(3$ #0 %"( #09($%&)?$ )(<-#)(. ),%( &*
)(%-)0"#$",$%&%,8(#0%&'&0$#.(),%#&0%"(%#2(9,3-(&*2&0(+,$7(33,$%"()#$8&*
$('-)#%+ #07"#'" %"(#09($%2(0% #$ /)&/&$(. %& 1( 2,.( "( %#2( 9,3-( &* 2&0(+#$
)(/)($(0%(. 1+ %"( )#$8 *)(( #0%()($% ),%( $-'" ,$ %"&$( &0 5&9()02(0% $('-)#%#($
/)(2#-2#$,..(.%&%"#$)#$8*)((#0%()($%),%(%&%,8(',)(&*%"()#$8%&1(1&)0(1+%"(
#09($%&)1+#09($%#05#0%"(/,)%#'-3,)$",)("(2&)()#$8+%"(#09($%2(0%%"(5)(,%()
%"()#$8/)(2#-2%",%%"(#09($%&)7#33)(<-#)(

"    

5&&. 9,3-,%#&0 2&.(3 #$ $#2/3( ,0. "(3/$ #09($%&)$ %& 2,8( #0*&)2(. .('#$#&0$
0,3+$%$-$(,7#.(),05(&*2&.(3$%&9,3-(,$$(%$#0/),'%#'(),05#05*)&2%"($#2/3(
%&%"($&/"#$%#',%(."($(2&.(3$&*%(02,8(9()+.#**()(0%,$$-2/%#&0$,1&-%/)#'#05
1-%%"(+.&$",)($&2('&22&0'",),'%()#$%#'$,0.',01('3,$$#*#(.#01)&,.()%()2$
"()(,)($(9(),3,.9,0%,5($%&$-'",'3,$$#*#',%#&0#%2,8($#%(,$#()%&-0.()$%,0.
7"()(#0.#9#.-,32&.(3$*#%#0%&%"(1#5/#'%-)(7"+%"(+/)&9#.(.#**()(0%)($-3%$,0.
7"(0%"(+",9(*-0.,2(0%,3())&)$#03&5#'


"    

)($(0%,3-( (%"&. #$'&-0%(.,$"*3&7

(,)&3.#05()#&. )((,$"3&7%&
%"(<-#%+
-3%#(,)&3.#05

$$(%
,$(.
//)&,'"

%"() //)&,'"($



()#&.

#9#.(0. #$'&-0% &.(3


&).&0 &.(3
-3%#/3()&7%" &.(3

(%"&.$&*'&2/,),13(
,%#&
,$(.
A,%#&
,%#&
(3,%#9(A,%#&
A
,%#&
A,3($),%#&

  

"(9,3-,%#&02&.(3-$(.%&($%#2,%(%"(#0%)#0$#'9,3-(&*,$",)(#$%"(/)($(0%9,3-(
2&.(3 "( #0%)#0$#' 9,3-( &* , $",)( #$ %"( /)($(0% 9,3-( &* ,33 *-%-)( ,2&-0%$ %& 1(
)('(#9(.&*%"(&70()$"#/&*%",%$",)('&2/-%(.,%,0,//)&/)#,%(.#$'&-0%),%("(
2,6&) )('(#/%$ %",% '&2( *)&2 %"( &70()$"#/ &* , $",)( ,)( %"( ,00-,3 .#9#.(0.$ ,0.
%"($,3(/)&'((.$&*%"($",)(,%%"((0.&*"&3.#05/()#&."($(,)(%&1(.#$'&-0%(.%&
*#0.%"(#)/)($(0%9,3-(-$#05,.#$'&-0%),%(%",%#$%"(),%(&*)(%-)0)(<-#)(.1+%"(
#09($%&)%,8#05#0%&'&0$#.(),%#&0%"()#$8#09&39(.,0.%"(#09($%&)?$&%"()#09($%2(0%
&//&)%-0#%#($

"( #09($%2(0% .('#$#&0 &* %"( *-0.,2(0%,3,0,3+$% %& 1-+ &) $(33 , $",)(#$ 1,$(. &0
%"('&2/,)#$&01(%7((0%"(#0%)#0$#'9,3-(&*,$",)(,0.#%$'-))(0%2,)8(%/)#'( *%"(
2,)8(% /)#'( #$ 3&7() %",0 %"( #0%)#0$#' 9,3-( %"(0 $-'" , $",)( #$ 1&-5"% ,0. #$
/()'(#9(.%&1(-0.()/)#'(. *%"(2,)8(%/)#'(#$"#5"()%",0%"(#0%)#0$#'9,3-(%"(0
$-'",$",)(7&-3.1('&0$#.()(.,$&9()/)#'(.,0.#$$&3.
&33&7#05,)(%7&2(%"&.$#0)($(0%,3-( (%"&.

   
%#$(,$+%&$%,)%9,3-,%#&07#%"&0(+(,)"&3.#05/()#&.,$$-2/%#&0()(,0#09($%&)
#0%(0.$ %& /-)'",$( , $",)( 0&7 "&3. #% *&)&0( +(,) ,0. $(33 #% &** ,% %"( (0. &* &0(
+(,) 0%"#$',$(%"(#09($%&)7&-3.1((=/('%(.%&)('(#9(,0,2&-0%&*.#9#.(0.,$
7(33,$%"($(33#05/)#'(,*%()&0(+(,)

Example:
*,0#09($%&)(=/('%$%&5(%$CE,$.#9#.(0.*)&2,$",)(0(=%+(,),0."&/($%&$(33
&** %"( $",)( ,% $E ,*%() "&3.#05 #% *&) &0( +(,) ,0. #* "#$ )(<-#)(. ),%( &* )(%-)0 #$
EI%"(/)($(0%9,3-(&*%"#$$",)(%&%"(#09($%&)',01(',3'-3,%(.,$*&33&7$K

Cash Inflow

Discount Rate (PVIF @ 25%)

Column 1 * 3

3.50

D

D

45

D

CF
Total

CDD


"()(*&)()($(0%,3-(&*",)(MRs 38.8

P     


0#09($%&)2,+"&3.,$",)(*&),'()%,#00-21()&*+(,)$,0.$(33#%&**,%%"((0.&*
"#$ "&3.#05 /()#&. 0 %"#$ ',$( "( 7&-3. )('(#9( ,00-,3 .#9#.(0.$ (,'" +(,) ,0. %"(
$,3(/)#'(&*%"($",)(,%%"((0.&*%"("&3.#05/()#&.

For example:
* ,0 #09($%&) (=/('%$ %& 5(% $CE $ ,0. $E ,$ .#9#.(0.*)&2 , $",)( .-)#05
%"(0(=%%")((+(,)$,0."&/($%&$(33#%&**,%$ E,%%"((0.&*%"(%"#).+(,),0.#*"#$
)(<-#)(. ),%( &* )(%-)0 #$ EI %"( /)($(0% 9,3-( &* %"( $",)( %& %"( #09($%&) ',0 1(
',3'-3,%(.

Year

Cash Inflow

Discount Rate (PVIF @ 25%)

Column 2 * 3

CE

D

D



F

EF

E

E

C

E

CD

"()(*&)()($(0%,3-(&*",)(MRs 46.064

Total

FF




  

3 )&1,13+%"(1#55($%.),71,'8#0%"(/)(9#&-$%7&(=,2/3($7,$%",%7(",.%&
/)(.#'%,$(33#05/)#'(
3 "( 1-+() &* %"( $%&'8 7"(0 7( $(33 #% 7#33 /)($-2,13+ 5& %")&-5" , $#2#3,)
/)&'(.-)( %& 9,3-( %"( $%&'8 : #0 &%"() 7&).$ %"( 1-+() 7#33 1( -$#05 *-%-)(
.#9#.(0.$%&9,3-(%"($%&'8
3 "($(33#05/)#'(&*%"($%&'8$"&-3.%"-$1(%"(9,3-(&*,33*-%-)(.#9#.(0.$

#9(0#09($%&)$ ',0"&3.,'&22&0$%&'8*&)&9(),+(,)#%#$ -$(*-3%&9,3-(, $%&'8


&9()%"(#09($%&)?$(=/('%(."&3.#05/()#&. 0%"#$',$(%"( 2&.(3',01(-$(.

0     

"( $#2/3($% 2&.(3 *&) 9,3-#05 (<-#%+ #$ %"( .#9#.(0. .#$'&-0% 2&.(3 "( &03+ ',$"
*3&7 7( )('(#9( *)&2 , *#)2 7"(0 7( 1-+ /-13#'3+ %),.(. $%&'8 #$ %"( .#9#.(0. ,0.
,//)('#,%#&0&*#%$9,3-("(,//)('#,%#&0&*%"(9,3-(#$0&%"#051-%%"((=/('%(./)#'(
&*%"($%&'8
-%%"((=/('%(./)#'(#$#%$(3*.(%()2#0(.1+%"(*-%-)(.#9#.(0.$(0'(
%"(9,3-(&*,$%&'8#$%"(/)($(0%9,3-(&*(=/('%(..#9#.(0.$&0#%
The General Model,

"(),%#&0,3(*&)%"(2&.(33#($#0%"(/)($(0%9,3-()-3(%"(9,3-(&*,0+,$$(%#$%"(
/)($(0% 9,3-( &* (=/('%(. *-%-)( ',$" *3&7$ .#$'&-0%(. ,% , ),%( ,//)&/)#,%( %& %"(
)#$8#0($$&*%"(',$"*3&7$

S
,3-(/()$",)(&*$%&'8

T 

%MN8

"()(,)(%7&1,$#'#0/-%$%&%"(2&.(3(=/('%(..#9#.(0.$,0.%"(),%(&*)(%-)0&
&1%,#0 %"( (=/('%(. .#9#.(0.$ 7( 2,8( ,$$-2/%#&0$ ,1&-% (=/('%(. *-%-)( 5)&7%"
),%($#0(,)0#05$,0./,+&-%),%#&$&80&72&)(,1&-% 2&.(3*#)$%7(",9(%&
-0.()$%,0. 5)&7%" /()#&.$ #( #5" 5)&7%" /()#&. %),0$#%#&0 /()#&. ,0. $%,13(
5)&7%"/()#&.

  
   
#
3 ey premise:
*#)2?$9,3-(',01(,//)&=#2,%(.1+%"($-2&*%"("#5"5)&7%"/()#&./3-$,$%,13(
5)&7%"/()#&.

3 ey risk:
(0$#%#9#%+ &* %()2#0,3 9,3-($ %& '"&#'( &* ,$$-2/%#&0$ ,1&-% $%,13( 5)&7%" ),%( ,0.
.#$'&-0%),%(,$$&'#,%(.7#%"%",%/()#&.

3 Stable growth rate:


"(*#)2?$5)&7%"),%(%",%#$(=/('%(.%&3,$%*&)(9()(0(),33+(<-,3%&&)3($$%",0
%"(#0.-$%)+&)&9(),33('&0&2+?$5)&7%"),%(&)2-3%#0,%#&0,3*#)2$%"(5)&7%"),%(
#$%"(7&)3.('&0&2+?$),%(&*5)&7%"

3 Length of the high growth period:


"( 5)(,%() %"( '-))(0% 5)&7%" ),%( &* , *#)2?$ ',$" *3&7 )(3,%#9( %& %"( $%,13(5)&7%"
),%(%"(3&05()%"("#5"5)&7%"/()#&.

"()( ,)( $(9(),3 .#9#.(0. .#$'&-0% 2&.(3$ 1,$(. &0 .#**()(0% ,$$-2/%#&0$ *&) %"(
',3'-3,%#05%"(9,3-(&*%"($%&'8&2(&*%"(2,)(

   

&).&0 &.(3,3$&80&70,$&0$%,0%)&7%" &.(3"(&).&05)&7%"2&.(3',0


1(-$(.%&9,3-(,*#)2%",%#$#0@$%(,.+$%,%(@7#%".#9#.(0.$5)&7#05,%,),%(%",%',0
1( $-$%,#0(. *&)(9() "( &).&0 5)&7%" 2&.(3 #$ 1($% $-#%(. *&) *#)2$ 5)&7#05 ,% ,
),%('&2/,),13(%&&)3&7()%",0%"(0&2#0,35)&7%"#0%"(('&0&2+,0.7"#'"",9(
7(33 ($%,13#$"(..#9#.(0. /,+&-% /&3#'#($ %",% %"(+ #0%(0. %& '&0%#0-(#0%& %"( *-%-)(
"(.#9#.(0./,+&-%&*%"(*#)2",$ %&1( '&0$#$%(0%7#%" %"(,$$-2/%#&0 &*$%,1#3#%+
$#0'($%,13(*#)2$5(0(),33+/,+$-1$%,0%#,3.#9#.(0.$
''&).#05%&%"(2&.(3%"(9,3-(&*%"($%&'8#$5#9(01+

,3-(&*%"(%&'8M N5
)5

H"()(
M=/('%(. #9#.(0.$()",)(.-)#050(=%/()#&.
)M(<-#)(.),%(&*)(%-)0*&)(<-#%+#09($%&)$
5M)&7%"),%(#0.#9#.(0.$*&)(9()

For Example:
GU%.",.(,)0#05/()$",)(&*$F3,$%+(,),0./,#.&-%EI&*#%$(,)0#05,$
.#9#.(0.$ %?$(,)0#05,0..#9#.(0.",.5#9(0,%I/()+(,)#0%"(3,$%+(,)$,0.,)(
(=/('%(.%&5)&7,%%"($,2(),%(#0%"(3&05%()2"()(<-#)(.),%(&*)(%-)0&0%"(
$%&'8&*GU%.#$I&2/-%(%"(,3-(&*%"(%&'8-$#05&).&0?$ &.(3

Solution:
M$F

ME
MEF
M$ED
=/('%(.5)&7%"),%(#0(,)0#05$,0..#9#.(0.$MI
,3-(&*%"(<-#%+M N5
)5
MEDN

MFDF
"()(*&)(,3-(&*",)(&*GU%.MRs 68.64




    $

3 "(-$(&*%"#$2&.(3#$)($%)#'%(.%&*#)2$%",%,)(5)&7#05,%,$%,13(),%("(
,$$-2/%#&0 %",% %"( 5)&7%" ),%( #0 .#9#.(0.$ ",$ %& 1( '&0$%,0% &9() %#2( #$ ,
.#**#'-3%,$$-2/%#&0%&2((%($/('#,33+5#9(0%"(9&3,%#3#%+&*(,)0#05$

$$-2(.5)&7%"),%(2,+1(#0'&))('%

3 "(5)&7%"),%(#$(<-,3%&%"()(<-#)(.),%(&*)(%-)0%"(0%"(9,3-(&*%"($%&'8
,//)&,'"($#0*#0#%+ *%"(5)&7%"),%(#$"#5"()%"(0%"()(<-#)(.),%(&*)(%-)0
%"(0 %"( 9,3-( &* %"( $%&'8 1('&2($ 0(5,%#9( *#)2 ',00&% 5)&7 #0 %"( 3&05
%()2,%,),%(#0%"(('&0&2+
3 "(*,3$(,$$-2/%#&0#$%",%#09($%&)$7#33"&3.$",)($*&)#0*#0#%(/()#&.&*%#2(

P    
 
"('&0$%,0%5)&7%",$$-2/%#&02,+0&%1()(,3#$%#'#02,0+$#%-,%#&0$"(5)&7%"#0
.#9#.(0.$2,+1(,%9,)+#05),%($ %+/#',3$#%-,%#&0*&)2,0+'&2/,0#($2,+1(%",%
,/()#&.&*(=%),&).#0,)+5)&7%"(#%"()5&&.&)1,.7#33/)(9,#3*&),'()%,#00-21()
&* +(,)$ ,*%() 7"#'" 5)&7%" 7#33 '",05( %& , 3(9(3 ,% 7"#'" #% #$ (=/('%(. %& '&0%#0-(
#0.(*#0#%(3+"#$$#%-,%#&0',01()(/)($(0%(.1+, -3%#/3()&7%" &.(3 ,3$&80&70
,$- two stage growth model
0 %"#$ 2&.(3 %"( *-%-)( %#2( /()#&. #$ 9#(7(. ,$ .#9#$#13( #0%& %7& .#**()(0% 5)&7%"
$(52(0%$ %"( #0#%#,3 (=%),&).#0,)+ 5)&7%" /()#&. ,0. %"( $-1$(<-(0% '&0$%,0% 5)&7%"
/()#&. -)#05%"(#0#%#,3/()#&.5)&7%"),%($7#331(9,)#,13(*)&2+(,)%&+(,)7"#3(
.-)#05%"($-1$(<-(0%+(,)$%"(5)&7%"),%(7#33)(2,#0'&0$%,0%*)&2+(,)%&+(,)
"( 2&.(3 ',0 1( ,.,/%(. %& 9,3-( '&2/,0#($ %",% ,)( (=/('%(. %& /&$% 3&7 &) (9(0
0(5,%#9(5)&7%"),%($*&),*(7+(,)$,0.%"(0)(9()%1,'8%&$%,13(5)&7%" ''&).#05
%&%"(2&.(3%"(9,3-(&*%"($%&'8#$5#9(01+

,3-(&*%"($%&'8M&*.#9#.(0.$.-)#05$-/()0&)2,35)&7%"N
&*%()2#0,3/)#'(

Example
'&2/,0+/,#.,.#9#.(0.&*$ E/()$",)(.-)#05%"('-))(0%+(,) %#$(=/('%(.
%&/,+,.#9#.(0.&*$/()$",)(.-)#05%"(0(=%+(,) 09($%&)*&)(',$%,.#9#.(0.&*
$C ,0. $CE /() $",)( )($/('%#9(3+ .-)#05 %"( $-1$(<-(0% +(,)$

*%() %",% #% #$

(=/('%(.%",%,00-,3.#9#.(0.$7#335)&7,%I/()+(,)#0%&,0#0.(*#0#%(*-%-)("(
)(<-#)(.),%(&*)(%-)0#$I,3'-3,%(%"(9,3-(&*%"($%&'8

Solution,
,3'-3,%#&0&*&*.#9#.(0.$.-)#05$-/()0&)2,35)&7%"

Year
Future Value
PVIF @ 20%

PVIF * F.V



DCC

FF

C

F!E

DE

CE

E D
Total

C
5.77

,3'-3,%#&0&*&*()2#0,3)#'(
0M N5
):50N8V0
H"()(
0M)#'(,%%"((0.&*+(,)0
M=/('%(..#9#.(0./()$",)(#0+(,)%

)M)(<-#)(.),%(&*)(%-)0
50M%(,.+$%,%(5)&7%"),%(*&)(9(),*%()+(,)0

CM N5
):50N8VC
MCEN
:NVC

MD

,3-(&*%"($%&'8ME

ND

MDE
"()(*&)(9,3-(&*%"($%&'8,*%()$-/()0&)2,35)&7%"/()#&.#$$DE




    
  $

"()( ,)( %")(( /)&13(2$ 7#%" %"( %7&$%,5( .#9#.(0. .#$'&-0% 2&.(3 : %"( *#)$% %7&
7&-3.,//3+%&,0+%7&$%,5(2&.(3,0.%"(%"#).#$$/('#*#'%&%"(.#9#.(0..#$'&-0%
2&.(3
3 "( /),'%#',3 /)&13(2 #$ #0 .(*#0#05 %"( 3(05%" &* %"( (=%),&).#0,)+ 5)&7%"
/()#&. #0'( %"( 5)&7%" ),%( #$ (=/('%(. %& .('3#0( %& , $%,13( 3(9(3 ,*%() %"#$
/()#&.%"(9,3-(&*,0#09($%2(0%7#33#0')(,$(,$%"#$/()#&.#$2,.(3&05() %
#$ .#**#'-3% #0 /),'%#'( %& '&09()% %"($( <-,3#%,%#9( '&0$#.(),%#&0$ #0%& , $/('#*#'
%#2(/()#&.

3 "($('&0./)&13(27#%"%"#$2&.(33#($#0%"(,$$-2/%#&0%",%%"(5)&7%"),%(
#$ "#5" .-)#05 %"( #0#%#,3 /()#&. ,0. #$ %),0$*&)2(. &9()0#5"% %& , 3&7() $%,13(
),%(,%%"((0.&*%"(/()#&.H"#3(%"($($-..(0%),0$*&)2,%#&0$#05)&7%"',0
",//(0 #% #$ 2-'" 2&)( )(,3#$%#' %& ,$$-2( %",% %"( $"#*% *)&2 "#5" 5)&7%" %&
$%,13(5)&7%"",//(0$5),.-,33+&9()%#2(

3 "(*&'-$&0.#9#.(0.$#0%"#$2&.(3',03(,.%&$8(7(.($%#2,%($&*9,3-(*&)
*#)2$%",%,)(0&%/,+#05&-%7",%%"(+',0,**&).#0.#9#.(0.$ 0/,)%#'-3,)7(
7#33-0.()($%#2,%(%"(9,3-(&**#)2$%",%,''-2-3,%(',$",0./,+&-%%&&3#%%3(
#0.#9#.(0.$

a   

"( .#$'&-0%(. ',$" *3&7 &)  ,//)&,'" .($')#1($ , 2(%"&. &* 9,3-#05 , /)&6('%
'&2/,0+&),$$(%-$#05%"('&0'(/%$&*%"(%#2(9,3-(&*2&0(+ 9,3-,%#&02(%"&.
-$(.%&($%#2,%(%"(,%%),'%#9(0($$&*,0#09($%2(0%&//&)%-0#%+

33*-%-)(',$"*3&7$,)(($%#2,%(.,0..#$'&-0%(.%&5#9(%"(2,/)($(0%9,3-("()(
,)( .#**()(0% %+/($ &*  2&.(3 #( ,$" *3&7 %& (<-#%+ 2&.(3 ,$" *3&7 %& *#)2
2&.(3,.6-$%(./)($(0%9,3-(2&.(3

 
 "% &

"( *)(( ',$" *3&7 2&.(3 ($%#2,%($ %"( 9,3-( &* (<-#%+ ,$ %"( /)($(0% 9,3-( &* %"(
(=/('%(.*)((',$"*3&7%&(<-#%+&9()%#2("#$#$,2(,$-)(&*"&72-'"',$"',01(
/,#. %& %"((<-#%+ $",)("&3.()$ &* %"('&2/,0+ ,*%() ,33 (=/(0$($ )(#09($%2(0% ,0.
.(1% )(/,+2(0% "( *)(( ',$" *3&7 %& (<-#%+ #$ .(*#0(. ,$ %"( )($#.-,3 ',$" *3&7 3(*%
&9() ,*%() 2((%#05 #0%()($% ,0. /)#0'#/,3 /,+2(0% ,0. /)&9#.#05 *&) ',/#%,3
(=/(0.#%-)(%&2,#0%,#0(=#$%#05,$$(%$,0.')(,%(0(7,$$(%$*&)*-%-)(5)&7%"

   
$
3 "#$,//)&,'"#$(,$#($%%&-$(*&),$$(%$*#)2$7"&$(
W,$"*3&7$,)('-))(0%3+/&$#%#9(,0.
W,01(($%#2,%(.7#%"$&2()(3#,1#3#%+*&)*-%-)(/()#&.$,0.
W H"()( , /)&=+ *&) )#$8 %",% ',0 1( -$(. %& &1%,#0 .#$'&-0% ),%($ #$
,9,#3,13(

3 %7&)8$1($%*&)#09($%&)$7"&(#%"()
W ,9( , 3&05 %#2( "&)#>&0 ,33&7#05 %"( 2,)8(% %#2( %& '&))('% #%$
9,3-,%#&02#$%,8($,0.*&)/)#'(%&)(9()%%&;%)-(49,3-(&)
W )(',/,13(&*/)&9#.#05%"(',%,3+$%0((.(.%&2&9(/)#'(%&9,3-(,$
7&-3.1(%"(',$(#*+&-7()(,0,'%#9#$%#09($%&)&),/&%(0%#,3,'<-#)()&*
%"(7"&3(*#)2




 

  $

3 #0'(#%#$,0,%%(2/%%&($%#2,%(#0%)#0$#'9,3-(#%)(<-#)($*,)2&)(#0/-%$,0.
#0*&)2,%#&0%",0&%"()9,3-,%#&0,//)&,'"($
3 "($( #0/-%$ ,0.#0*&)2,%#&0 ,)( 0&% &03+ 0&#$+ ,0. .#**#'-3% %& ($%#2,%( 1-%
',0 1( 2,0#/-3,%(. 1+ %"( $,99+ ,0,3+$% %& /)&9#.( %"( '&0'3-$#&0 "( &) $"(
7,0%$

Example,
Excel Chemicals Company: Summarized Balance Sheet

Rs. In
Rs. In
Crore
Crore
&-)'(&**-0.

",)("&3.()$*-0.

,#.-/',/#%,3E')&)($",)($&*$
E
(,'"
($()9($-)/3-$
E
F E

&))&7(.-0.

('-)(.

0$('-)(.
!E
!E
,/#%,32/3&+(.

! 
$($&**-0.

)&$$13&'8
FE
($$B (/)('#,%#&0
DE
(%
3&'8

C 
09($%2(0%

C
-))(0% $$(%
EC
($$B-))(0%#,1#3#%#($
 D
575
(%-))(0% $$(%$

(% $$(%$
! 

Excel chemicals summarized profit and loss account and per share data













(%,3($
&$%&*5&&.$$&3.
(/)('#,%#&0
(33#05,0. .2#0#$%),%#9((=/(0$(
&%,3(=/(0$(


0%()($%


,=
 

()$",)(.,%,



&&89,3-(
,)8(%9,3-(
#5"
&7
9(),5(
A),%#&
#5"
&7
9(),5(


!!E
C
F
!
E
!
C
E
DF

C



C

F

!
F
D




 E
CE

E
E
C


C

E


F
CE

F
!


ED
E
E
D
E
C
C

CE


C

F



CC

E
D


F
FE
E
!
E

E
E

E

C

D

CE
F
F


E
D

F!E
!E

C
EC
ED
C
D
E
DC

C
$
!

D
C


D

F

%$ $,3( ",$ 5)&70 %& I .-)#05 %"( +(,) "( ='(3$ 2,0,5(2(0% 7&-3. #0')(,$(
5)&7%" ),%( %& D I 7#%"#0 C +(,)$ )(.-'(  %& FFI ,0. $(33#05  .#$%)#1-%#&0
(=/(0$( %& EI &* $,3($ ,/#%,3 =/(0.#%-)( #$ EI &* $,3($ ,= ),%( #$ CE I
(/)('#,%#&0#$XI"(5)&7%"),%(#$FI,3'-3,%(9,3-(&*<-#%+

Solution,
Particulars

2004

2005

2006

2007

F!E

 D

DDF



!E

D

DC

CEC

C

CC

C

CC

Less: Depreciation



E

EE

F

Profit Before Tax

ED

!D

F

C

Less: Tax @ 35%

EE

F!

DF

F

Profit After Tax

C

!

F

!D

Add: Depreciation



E

EE

F

Cash Flows

C

D

E

ED

Less: CAPEX

D!

!



Less: Changes in Working Capital

C

CF

F

143

61

85

111

Sales
Less: Cost of goods sold

(% of Sales)

Less : Selling & Distribution Expenses

(% of

Sales)

Net Free Cash Flow

Working Notes,
1) Calculation of Depreciation;
Year

Asset
(Rs.)

2004
2005
2006
2007

Capital
Expenditure

Total Assets

EI&*,3($

C 

!

&3-20NC

D!
F
!
E

EE

Depreciation Net Assets


(Rs.)
I

E
EE
F


!
!

2) Calculation of net change in working capital


Year
2004
2005
2006
2007

Sales
F!E
 D
DDF


Working Capital as % of
Sales
CI
CI
CI
CI

Working Capital
E E
FE
F
FD

Change in Working
Capital

C
CF
F

Calculation of Cost of Debt


.M %,=
MECE
M! EI
Calculation of Cost of Equity
(M Y5


MYFI
!
MDCI
Calculation of WACC (Weighted Average Cost of Capital);

e
d

Book Value weights Cost of Equity


Column 3 * 4
F E
F!F
DC
CFD
!E
C
! E
!F
0.1328568

WACC = 13% ),%(&*)(%-)0


H(7#33.#$'&-0%(,'"0(%',$"*3&71+CI

Calculation of Salvage Value;


,39,5(,3-(M(%,$"3&7N5
)5

MNF
CIFI
M$FD

&%,3,3-(&*%"(#)2M(%,$"3&7Y XCI

Year
Net Cash Flow
PVIF @ 13%

2005 F
DDE
2006 DE
 DC
2007 
F!C
FD,39,5(,3-(
F!C
Total Value Of the Firm

,3-(&*%"(#)2MCF
($$,3-(&* (1%M!E*)&2%"(
,3,0'("((%
,3-(&*<-#%+M 1067

-21()&*<-#%+",)($#0='(3ME')&)(

,3-(&*,'"",)(M,3-(&*<-#%+
-21()&*<-#%+",)($

MF
E
M$FD

Value of Equity Shares = 42.68

DCF

EC!DE
FFEEE
F!C
F!CC
CFC!F

     
     
The constant growth FCFE model
 

   



 


 

"('&0$%,0%5)&7%"2&.(3#$.($#50(.%&9,3-(*#)2$%",%,)(5)&7#05,%,$%,13(
),%( ,0. ,)( "(0'( #0 $%(,.+ $%,%( "( 9,3-( &* (<-#%+ -0.() %"( '&0$%,0% 5)&7%"
2&.(3#$,*-0'%#&0&*%"((=/('%(.#0%"(0(=%/()#&.%"($%,13(5)&7%"),%(,0.
%"()(<-#)(.),%(&*)(%-)0)&2%"#$2&.(39,3-(7#331(',3'-3,%(.,$*&33&7$

,3-(&*<-#%+M
)5

Example,
"#3#/ &))#$ 0',$*&33&7#05.,%,
Particulars
Amt (Rs.)
#0!!
EE
,#.&-% 
CE
,/#%,3$/(0.#05/()$",)(
D
(/)('#,%#&0/()$",)(
EE
H&)8#05',/#%,3#0')(,$(./()$",)(
F!
(1%),%#&
!! I

(%,*&)$%&'8

1&0.),%(
I
7,$(=/('%(.%&5)&7,+(,)
EI

Solution,
Particulars
-))(0%
(Less)
,/#%,3$/(0.#05 (/)('#,%#&0
(Multiply)  (1%),%#&
(Less)
Z7&)8#05',/#%,3
(Multiply)  (1%),%#&

Free Cash Flow to the Equity

Rs.
Rs.

EE
E

CI D
F

CI 

4.85

Cost of Equity = IN=EI


=EI
Rate of Return = EI
Value of stock = DE=E
EE
MF !

Value of Equity Share = Rs. 67.9

P
'   

"(%7&$%,5(2&.(3#$.($#50(.%&9,3-(,*#)27"#'"#$(=/('%(.%&5)&72-'"
*,$%()%",0,$%,13(*#)2#0%"(#0#%#,3/()#&.,0.,%,$%,13(),%(,*%()%",%"(%7&$%,5(
2&.(3#$.($#50(.%&9,3-(,*#)27"#'"#$(=/('%(.%&5)&72-'"*,$%()%",0,
$%,13(*#)2#0%"(#0#%#,3/()#&.,0.,%,$%,13(),%(,*%()%",%)&2%"#$2&.(39,3-(7#33
1(',3'-3,%(.,$*&33&7$

,3-(&*<-#%+M&*N&*%()2#0,3/)#'(

#(

,3-(&*<-#%+ %N0
N)%N)0

"(%()2#0,3/)#'(#$5(0(),33+',3'-3,%(.-$#05%"(#0*#0#%(5)&7%"),%(2&.(3

0M0N
):50

Works best for:


"#$ 2&.(3 2,8($ %"( $,2( ,$$-2/%#&0$ ,1&-% 5)&7%" ,$ %"( %7&$%,5( .#9#.(0.
.#$'&-0%2&.(3#(%",%5)&7%"7#331("#5",0.'&0$%,0%#0%"(#0#%#,3/()#&.,0..)&/
,1)-/%3+ %& $%,13( 5)&7%" ,*%() %",% % #$ .#**()(0% 1(',-$( &* #%$ (2/",$#$ &0 
),%"()%",0.#9#.(0.$&0$(<-(0%3+#%/)&9#.($2-'"1(%%())($-3%$%",0%"(.#9#.(0.
.#$'&-0% 2&.(3 7"(0 9,3-#05 *#)2$ 7"#'" (#%"() ",9( .#9#.(0.$ 7"#'" ,)(
-0$-$%,#0,13(1(',-$(%"(+,)("#5"()%",0&)7"#'"/,+3($$#0.#9#.(0.$%",0
%"(+',0,**&).%&#(.#9#.(0.$,)(3($$%",0

   
"(")((%,5( &.(3,3$&80&70,$ 2&.(37"#'"#$.($#50(.%&9,3-(*#)2$
%",%,)((=/('%(.%&5&%")&-5"%")(($%,5($&*5)&7%",0#0#%#,3/",$(&*"#5"5)&7%"
),%($ , %),0$#%#&0,3 /()#&. 7"()( %"( 5)&7%" ),%( .('3#0($ ,0. , $%(,.+ $%,%( /()#&.
7"()(5)&7%"#$$%,13("(2&.(3',3'-3,%($%"(/)($(0%9,3-(&*(=/('%(.*)((',$"
*3&7%&(<-#%+&9(),33%")(($%,5($&*5)&7%"


)&2%"#$2&.(39,3-(7#331(',3'-3,%(.,$*&33&7$

H"()(
M,3-(&*%"($%&'8%&.,+
%M#0+(,)%
8(M&$%&*(<-#%+
0M()2#0,3/)#'(,%%"((0.&*%),0$#%#&0,3/()#&.M0N
)50
0M0.&*#0#%#,3"#5"5)&7%"/()#&.
0M0.&*%),0$#%#&0/()#&.

Works best for:


#0'(%"(2&.(3,33&7$*&)%")(($%,5($&*5)&7%",0.*&),5),.-,3.('3#0(*)&2"#5"%&
$%,13(5)&7%"#%#$%"(,//)&/)#,%(2&.(3%&-$(%&9,3-(*#)2$7#%"9()+"#5"5)&7%"
),%($ '-))(0%3+ "( ,$$-2/%#&0$ ,1&-% 5)&7%" ,)( $#2#3,) %& %"( &0($ 2,.( 1+ %"(
%")(($%,5( .#9#.(0. .#$'&-0% 2&.(3 1-% %"( *&'-$ #$ &0  #0$%(,. &* .#9#.(0.$
2,8#05#%2&)($-#%(.%&9,3-(*#)2$7"&$(.#9#.(0.$,)($#50#*#',0%3+"#5"()&)3&7()
%",0%"(



 


3If firm is
,)5(,0.5)&7#05,%,),%('3&$(%&&)3($$%",05)&7%"),%(&*%"(('&0&2+&)
&0$%),#0(.1+)(5-3,%#&0*)&25)&7#05,%),%(*,$%()%",0%"(('&0&2+
,$%"('",),'%()#$%#'&*,$%,13(*#)2,9(),5()#$8)(#09($%2(0%),%($

Use a Stable Growth Model

3If firm is
$3,)5(5)&7#05,%,2&.(),%(),%(9(),335)&7%"),%(NI&)
,$,$#053(/)&.-'%1,))#()$%&(0%)+7#%",*#0#%(3#*((5,%(0%$

Use a 2-Stage Growth Model

3If firm is
$$2,33,0.5)&7#05,%,9()+"#5"),%([9(),335)&7%"),%(NI&)
,$$#50#*#',0%1,))#()$%&(0%)+#0%&%"(1-$#0($$
,$*#)2'",),'%()#$%#'$%",%,)(9()+.#**()(0%*)&2%"(0&)2

Use a 3-Stage or n-stage Model


           

"(.#$'&-0%(.',$"*3&72&.(3%",%-$($',01(9#(7(.,$,0,3%()0,%#9(%&%"(
.#9#.(0. .#$'&-0% 2&.(3 #0'( %"( %7& ,//)&,'"($ $&2(%#2($ /)&9#.( .#**()(0%
($%#2,%($&*9,3-(#%#$7&)%"(=,2#0#057"(0%"(+/)&9#.($#2#3,)($%#2,%($&*9,3-(
7"(0 %"(+ /)&9#.( .#**()(0% ($%#2,%($ &* 9,3-( ,0. 7",% %"( .#**()(0'( %(33$ -$ ,1&-%
%"(*#)2

 

"()( ,)( %7& '&0.#%#&0$ -0.() 7"#'" %"( 9,3-( *)&2 -$#05 %"(  #0 .#$'&-0%(.
',$" *3&7 9,3-,%#&0 7#33 1( %"( $,2( ,$ %"( 9,3-( &1%,#0(. *)&2 -$#05 %"( .#9#.(0.
.#$'&-0%2&.(3
3 "(*#)$%#$%"(&19#&-$&0(7"()(%"(.#9#.(0.$,)((<-,3%&%"(
3 "( $('&0. '&0.#%#&0 #$ 2&)( $-1%3( 7"()( %"(  #$ 5)(,%() %",0
#9#.(0.$1-%%"((='($$',$" #9#.(0.$#$#09($%(.#0/)&6('%$7#%"
0(%/)($(0%9,3-(&*>()&

 
"()(,)($(9(),3',$($7"()(%"(%7&2&.(3$7#33/)&9#.(.#**()(0%($%#2,%($&*9,3-(
3 #)$%7"(0%"(#$5)(,%()%",0%"(.#9#.(0.,0.%"((='($$',$"(#%"()
(,)0$1(3&72,)8(%#0%()($%),%($&)#$#09($%(.#00(5,%#9(0(%/)($(0%9,3-(
/)&6('%$%"(9,3-(*)&2%"(2&.(37#331(5)(,%()%",0%"(9,3-(*)&2
%"(.#9#.(0..#$'&-0%2&.(3


3 ('&0. %"( /,+2(0% &* .#9#.(0.$ 3($$ %",0  3&7()$ .(1%(<-#%+ ),%#&$
,0.2,+3(,.%"(*#)2%&1('&2(-0.()3(9()(.',-$#05,3&$$#09,3-(

3 "()( #$ , %"#). /&$$#1#3#%+ ,0. #% )(*3('%$ .#**()(0% ,$$-2/%#&0$ ,1&-%


)(#09($%2(0%,0.5)&7%"#0%"(%7&2&.(3$ *%"($,2(5)&7%"),%(-$(.#0
%"(.#9#.(0..#$'&-0%,0.2&.(3$%"(2&.(37#335#9(,"#5"()
9,3-( %",0 %"( .#9#.(0. .#$'&-0% 2&.(3 7"(0(9()  ,)( "#5"() %",0
.#9#.(0.$,0.,3&7()9,3-(7"(0.#9#.(0.$(='((.

 
 (

H"(0 %"( 9,3-( -$#05 %"(  2&.(3 #$ .#**()(0% *)&2 %"( 9,3-( -$#05 %"( .#9#.(0.
.#$'&-0%2&.(37#%"'&0$#$%(0%5)&7%",$$-2/%#&0$%"()(,)(%7&<-($%#&0$%",%0((.
%& 1( ,..)($$(.  H",% .&($ %"(.#**()(0'(1(%7((0 %"( %7& 2&.(3$ %(33 -$\ H"#'" &*
%"(%7&2&.(3$#$%"(,//)&/)#,%(&0(%&-$(#0(9,3-,%#05%"(2,)8(%/)#'(\

"(2&)('&22&0&''-))(0'(#$*&)%"(9,3-(*)&2%"(2&.(3%&(='((.%"(9,3-(
*)&2 %"( .#9#.(0. .#$'&-0% 2&.(3 "( .#**()(0'( 1(%7((0 %"( 9,3-( *)&2 %"( 
2&.(3 ,0. %"( 9,3-( -$#05 %"( .#9#.(0. .#$'&-0% 2&.(3 ',0 1( '&0$#.()(. &0(
'&2/&0(0% &* %"( 9,3-( &* '&0%)&33#05 , *#)2  #% 2(,$-)($ %"( 9,3-( &* '&0%)&33#05
.#9#.(0. /&3#'+ 0 , "&$%#3( %,8(&9() %"( 1#..() ',0 (=/('% %& '&0%)&3 %"( *#)2 ,0.
'",05(%"(.#9#.(0./&3#'+%&)(*3('%%"-$',/%-)#05%"("#5"()9,3-(

$ *&) 7"#'" &* %"( %7& 9,3-($ #$ %"( 2&)( ,//)&/)#,%( &0( *&) -$( #0 (9,3-,%#05 %"(
2,)8(% /)#'( %"( ,0$7() 3#($ #0 %"( &/(00($$ &* %"( 2,)8(% *&) '&)/&),%( '&0%)&3 *
%"()(#$,$#>,13(/)&1,1#3#%+%",%,*#)2',01(%,8(0&9()&)#%$2,0,5(2(0%'",05(.
%"(2,)8(%/)#'(7#33)(*3('%%",%3#8(3#"&&.,0.%"(,//)&/)#,%(1(0'"2,)8%&-$(#$%"(
9,3-(*)&2%"(2&.(3
$ '",05($ #0 '&)/&),%( '&0%)&3 1('&2( 2&)( .#**#'-3% (#%"() 1(',-$( &* , *#)2@$ $#>(
,0.A&)3(5,3&)2,)8(%)($%)#'%#&0$&0%,8(&9()$%"(9,3-(*)&2%"(.#9#.(0..#$'&-0%
2&.(37#33/)&9#.(%"(,//)&/)#,%(1(0'"2,)8*&)'&2/,)#$&0

   

$$(%
,$(.

//)&,'" *&'-$($ &0 .(%()2#0#05 %"( 9,3-( &* 0(% ,$$(%$ *)&2 %"(

/()$/('%#9(&*(<-#%+$",)(9,3-,%#&0 %$"&-3..(%()2#0(7"(%"()%"(,$$(%$$"&-3.1(
9,3-(.,%1&&82,)8(%,0.)(/3,'(2(0%&)3#<-#.,%#&09,3-( &)(&*%(0%",00&%%"(+
,)( ,0. $"&-3. 1( 9,3-(. ,% 1&&8 9,3-( %",% #$ &)#5#0,3 ,'<-#$#%#&0 '&$% 2#0-$
,''-2-3,%(..(/)('#,%#&0,$,$$(%$,)(0&)2,33+,'<-#)(.7#%"%"(#0%(0%%&1(-$(.#0
1-$#0($$ ,0. 0&% *&) )($,3( "-$ 9,3-,%#&0 &* ,$$(%$ #$ 1,$(. &0 %"( 5&#05 '&0'()0
'&0'(/%
/,)% *)&2 %,05#13( ,$$(%$ #0%,05#13( ,$$(%$ $-'" ,$ 5&&.7#33 /,%(0%$ %),.(2,)8
1),0.$80&7"&7,0.$&&0,3$&0((.%&1(9,3-(.$,%#$*,'%&)#3+ %2,+1(-$(*-3%&
,.&/%%"($-/()/)&*#%2(%"&.%&9,3-($&2(&*%"($(,$$(%$
& ,))#9( ,% %"( 0(% ,$$(%$ 9,3-( %&%,3 (=%()0,3 3#,1#3#%#($ #0'3-.#05 /)(*()(0'( $",)(
',/#%,3 /,+,13( ,)( .(.-'%(. *)&2 %&%,3 ,$$(%$ (='3-.#05 *#'%#%#&-$ ,$$(%$ "(
'&2/,0+?$0(%,$$(%$,)('&2/-%(.,$/()(<-,%#&0

(% $$(%$M&%,3 $$(%$:&%,3=%()0,33#,1#3#%#($

"( 9,3-( &* 0(% ,$$(%$ #$ ,3$& 80&70 ,$ 0(% 7&)%" &) (<-#%+A &).#0,)+ $",)("&3.()$
*-0.$ $$-2#05%"(*#5-)(&*0(%,$$(%$%&1(/&$#%#9(#%#2/3#($%"(9,3-(,9,#3,13(%&
(<-#%+$",)("&3.()$,*%()%"(/,+2(0%&*,33(=%()0,33#,1#3#%#($(%,$$(%$/()$",)(',0
1( &1%,#0(. 1+ .#9#.#05 0(% ,$$(%$ 1+ %"( 0-21() &* (<-#%+ $",)($ #$$-(. ,0.
&-%$%,0.#05"-$

(% $$(%$/()",)(M(% $$(%$


-21()&*<-#%+",)($#$$-(.,0.&-%$%,0.#05

"(9,3-(&*0(%,$$(%$#$'&0%#05(0%-/&0%"(2(,$-)(&*9,3-(,.&/%(.*&)%"(/-)/&$(
&*9,3-,%#&0&*,$$(%$,0.3#,1#3#%#($ 0%"(',$(&*1&&89,3-(,$$(%$,0.3#,1#3#%#($,)(
%,8(0 ,% %"(#) 1,3,0'( $"((% 9,3-($ 0 %"( 2,)8(% 9,3-( 2(,$-)( ,$$(%$ $"&70 #0 %"(
1,3,0'($"((%,)()(9,3-(.,%%"('-))(0%2,)8(%/)#'($
"(0(%,$$(%$9,3-,%#&01,$(.&01&&89,3-(#$#0%-0(7#%"%"(5&#05'&0'()0/)#0'#/3(
&*,''&-0%#05 0'&0%),$%3#<-#.,%#&09,3-(2(,$-)(#$5-#.(.1+%"()(,3#>,13(9,3-(
,9,#3,13(&0%"(7#0.#05-/A3#<-#.,%#&0&*,'&)/&),%(*#)2
#<-#.,%#&0 9,3-( #$ %"( *#0,3 0(% ,$$(% 9,3-( #* ,0+ /() $",)( ,9,#3,13( %& %"( (<-#%+
$",)("&3.()"(9,3-(#$5#9(0,$/()(<-,%#&0

(%
$$(%M#<-#.,%#&0,3-(&*,$$(%$:#<-#.,%#&0=/(0$($:&%,3=%()0,3#,1#3#%#($
()",)(-21()&*<-#%+",)( $$-(.,0.-%$%,0.#05

Example:

&33&7#05#$%"(1,3,0'($"((%&*G%.,$&0 ,)'"CD
$ 0,8"
Liabilities
Share Capital
40,000 11% Preference Share

Amt (Rs.)



of Rs. 100 each, Fully paid


1,20,000 Equity Shares of Rs

Assets

Amt (Rs.) Amt (Rs.)

#=(. $$(%$

E

($$B (/)('#,%#&0

C



%&'8$



100 each, Fully paid



Profit and Loss Account

C

(1%&)$

E

10 % Debentures



,$",0.
,08



Trade Creditors

)(3#2#0,)+=/

Provision for Income Tax

282

282

Additional Information:


*#)2&*)&*($$#&0,3,3-()$",$/)&9#.(.%"(*&33&7#052,)8(%($%#2,%($&*#%$
9,)#&-$,$$(%$#=(. $$(%$$C3,8"%&'8$$3,8" (1%&)$$E3,8"
33&%"(),$$(%$,)(%,8(0,%%"(#)1,3,0'($"((%9,3-($

 "(&2/,0+#$+(%%&.('3,)(,0./,+.#9#.(0.&0)(*()(0'(",)($
C "(,3-(,3$&($%#2,%(%"('-))(0%$,3(/)&'((.$&*%"(*#)2?$,$$(%$#0%"((9(0%
&*#%$3#<-#.,%#&0*#=(.,$$(%$$E3,8"$%&'8$!3,8".(1%&)$$3,8"

($#.($%"(*#)2#$%&#0'-)$E3,8",$3#<-#.,%#&0'&$%$

&- ,)( )(<-#)(. %& '&2/-%( %"( 0(% ,$$(% 9,3-( /() $",)( ,$ /() $",)( 2,)8(% 9,3-(
,0.3#<-#.,%#&09,3-(1,$($

Solution: Determination of Net Value Per Share

1) Book Value Basis


Particulars

Amt (Rs.)

Amt(Rs.)

Fixed Assets (net)



Current Assets:

Stocks



Debtors

E

Cash and Bank



F

Total Assets

Less: External Liabilities

D

10% Debentures



Trade Creditors

Provision for Income Tax

11% Preference Share Capital



Dividend on Preference Share



(0.11 * Rs 40 Lakh)

C

Net Assets Available for Equity Shareholder

CFF

Divided by the number of Equity Shares (in lakh)



Net Assets Value Per share (Rs)

113.83

2) Market Value Basis

Particulars

Amt (Rs.)

Amt(Rs.)

Fixed Assets (net)

C

Current Assets:

Stocks



Debtors

E

Cash and Bank



E

Total Assets

D

Less: External Liabilities

(as per details given above)

C

Net Assets Available for Equity Shareholder

CF

Divided by the number of Equity Shares (in lakh)



Net Assets Value Per share (Rs)

119.67

3) Liquidation Value Basis


Particulars

Amt (Rs.)

Amt(Rs.)

Fixed Assets (net)

E

Current Assets:

Stocks

!

Debtors



Cash and Bank





Total Assets

E

Less: External Liabilities

(as per details given above)

C

Net Assets Available for Equity Shareholder

DFF

Divided by the number of Equity Shares (in lakh)



Net Assets Value Per share (Rs)



"(

72.17

    

$$(%
,$(.

//)&,'" #$ 0,%-),33+ ,//(,3#05 #0 %",% #% #0.#',%($ %"( 0(% ,$$(%$

1,'8#05 /() <-#%+ ",)($ &7(9() %"( ,//)&,'" #50&)($ %"( *-%-)( (,)0#05$A ',$"
*3&(5(0(),%#05,1#3#%+&*%"('&2/,0+?$,$$(%$

    %  &

"#$2(%"&.#$1,$(.&0%"(/)#0'#/,3&*$-1$%#%-%#&07"#'"$%,%($%",%;&0(7#33/,+0&
2&)(*&),0#%(2%",0%"('&$%&*,'<-#)#05,0(<-,33+.($#),13($-1$%#%-%(4
"( &16('%#9( &* '&2/,),13( '&2/,0+ ,//)&,'" #$ %& 9,3-( %"( ,$$(%$ 1,$(. &0 "&7
$#2#3,) ,$$(%$ ,)( /)#'(. #0 %"( 2,)8(% /3,'( % #$ ,3$& %()2(. ,$ )(3,%#9( 9,3-,%#&0 0
)(3,%#9( 9,3-,%#&0 %"( 9,3-( &* ,0 ,$$(% #$ .()#9(. *)&2 %"( /)#'#05 &* @'&2/,),13(@
,$$(%$$%,0.,).#>(.-$#05,'&22&09,)#,13($-'",$(,)0#05$',$"*3&7$1&&89,3-(
&) )(9(0-($ H#.(3+ -$(. 2-3%#/3($ ,)( /)#'((,)0#05$),%#& /)#'( %&1&&8 9,3-(),%#&
/)#'(%&$,3($),%#&(%'

 

       

3 "#$,//)&,'"#$(,$#($%%&-$(7"(0
W"()(,)(,3,)5(0-21()&*,$$(%$'&2/,),13(%&%"(&0(1(#059,3-(.
W"($(,$$(%$,)(/)#'(.#0,2,)8(%
W"()((=#$%$$&2('&22&09,)#,13(%",%',01(-$(.%&$%,0.,).#>(%"(
/)#'(

3 "#$,//)&,'"%(0.$%&7&)81($%*&)#09($%&)$
WH"&",9()(3,%#9(3+$"&)%%#2("&)#>&0$
W )(6-.5(.1,$(.-/&0,)(3,%#9(1(0'"2,)8%"(2,)8(%&%"()
/&)%*&3#&2,0,5()$*&33&7#05%"($,2(#09($%2(0%$%+3((%'
W,0%,8(,'%#&0$%",%',0%,8(,.9,0%,5(&*%"()(3,%#9(2#$/)#'#05K*&)
#0$%,0'(,"(.5(*-0.',01-+%"(-0.()9,3-(.,0.$(33%"(&9()9,3-(.
,$$(%$

   

    

3 ,$+ %& -0.()$%,0. ,0. ,//3+K -$($ (,$#3+ ,9,#3,13( '-))(0% 2,)8(% .,%,
(3#2#0,%#05%"(0((.*&)/)&6('%#05',$"*3&7$,3-,%#&01,$(.&02-3%#/3($,0.
'&2/,),13( *#)2 ',0 1( .&0( 7#%" *(7() ,$$-2/%#&0$ ,0. ,% , *,$%() ),%( %",0
%"(.#$'&-0%(.',$"*3&79,3-,%#&0

3 "( )(3,%#9( 9,3-,%#&0 #$ $#2/3( ,0. (,$+ %& -0.()$%,0. ,0. /)($(0% %& '3#(0%$
%",0 2(%"&.
3 "()(3,%#9(9,3-,%#&02(,$-)($%"()(3,%#9(9,3-(&*,$$(%$),%"()%",0#0%)#0$#'
9,3-(,0."(0'(#%)(*3('%$'-))(0%,%2&$/"()(&*%"(2,)8(%

   

    

3 #**#'-3% %& *#0. '&2/,0#($ %",% ,)( %)-3+ '&2/,),13(  3#$%(. '&2/,0#($ ,)(
%+/#',33+3,)5(),0.3($$)#$8+

3
(',-$( 7( .&0?% 2,8( ,$$-2/%#&0$ 7( 2,+ #50&)( %"( )&3( &* 8(+
*-0.,2(0%,3$$-'",$5)&7%",0.',$"*3&7$
3 (3,%#9(9,3-,%#&0',/%-)($'-))(0%2,)8(%$(0%#2(0%$&#%2,+,3$&#0'&)/&),%(
2,)8(% 2#$(9,3-,%#&0$ ,'" $%(/ #0 9,3-#05 -$#05 2-3%#/3($ ,0,3+$#$ #$
$-16('%#9( ,0. /)&9#.($ ,0 &/(0#05 *&) 2,0#/-3,%#&0 &* )($-3%$ "( 2-3%#/3($
,//)&,'"',06-$%#*+,7#.(),05(&*9,3-($*&)1-$#0($$($
3 "(3,'8&*(=/3#'#%,$$-2/%#&0$2,8($,)(3,%#9(9,3-,%#&0(,$+%&2,0#/-3,%(

    

   

"(*#)$%$%(/#0'&2/,),13('&2/,0+,//)&,'"#$%&2,8(,0#0.(/%",0,3+$#$&*%"(
*#)2 %& 5(% )#'" #0$#5"%$ #0%& *#0,0'#,3 ,0. &/(),%#&0,3 ,$/('%$ 0,3+$#$ &* %"( *#)2
#09&39($1&%"<-,0%#%,%#9(,$7(33,$<-,3#%,%#9(,0,3+$#$"(<-,0%#%,%#9(,$/('%$3&&8
,*%() %"( 3#<-#.#%+ /)&*#%,1#3#%+ ,0. %"( $&39(0'+ &* %"( *#)2 0 %"( &%"() ",0.
<-,3#%,%#9( ,$/('%$ *,'%&) 3&&8$ ,*%() %"( /&$#%#&0 &* %"( *#)2 #0 %"( #0.-$%)+ 2,)8(%
$",)('&2/(%#%#9(,.9,0%,5('&2/(%(0'(,0.#0%(5)#%+&*%"(2,0,5(2(0%,$$&2(&*
%"(*,'%&)



 

    

'&2/,),13(*#)2#$&0(7#%"',$"*3&7$5)&7%"/&%(0%#,3,0.)#$8$#2#3,)%&%"(*#)2
1(#05 9,3-(. "( /,),2(%()$ *&) #.(0%#*#',%#&0 &* $-'" *#)2$ #0'3-.( /)&.-'% /)&*#3(
$',3( &* &/(),%#&0 ,0. 2,)8(% $()9(. '&$% $%)-'%-)($ 5(&5),/"#',3 3&',%#&0 ,0.
%('"0&3&5+
0'(%"(/&%(0%#,3'&2/,),13(*#)2$,)(#.(0%#*#(.(,'"&*%"(*#)2$#$,0,3+>(.1,$(.
&0 %"( /)(.(%()2#0(. /,),2(%()$ )&2 %"( *#)2$ 7"#'" ,)( #.(0%#*#(. %")(( %& *#9(
$/('#*#'*#)2$7"#'"1(,),'3&$($#2#3,)#%+7#%"%"(*#)21(#059,3-(.,)($(3('%(.



 

      

"( "#$%&)#',3 *#0,0'#,3 $%,%(2(0%$ $-'" ,$


,3,0'( "((%  ,A' &* %"( *#)2 1(#05
9,3-(.2-$%*#)$%1('&2/,)(.7#%"%",%&*'&2/,),13(*#)2$%&#.(0%#*+.#$$#2#3,)#%#($
#*,0+1(%7((0%"(2


&2( &* %"( '&22&0 ,)(,$ &* .#$$#2#3,)#%#($ ,)(B 2(%"&. &* #09(0%&)+ 9,3-,%#&0
.(/)('#,%#&0/&3#'#($9,3-,%#&0&*#0%,05#13(,$$(%$%)(,%2(0%&*&**1,3,0'($"((%#%(2$
(%'0'($-'".#$$#2#3,)#%#($,)(#.(0%#*#(.,//)&/)#,%(,.6-$%2(0%$,)(%&1(2,.(%&
2,8(%"(*#0,0'#,3$%,%(2(0%&*%"(*#)2$'&2/,),13(

)

   

-3%#/3($-$(.*&)9,3-,%#&0,)(K

 *

H"(0#%'&2($%&9,3-#05$%&'8$%"(/)#'(A(,)0#05$),%#&#$&0(&*%"(&3.($%,0.2&$%
*)(<-(0%3+ -$(. 2(%)#'$ % #$ ,3$& 80&70 ,$ L/)#'( 2-3%#/3(L &) L(,)0#05$ 2-3%#/3(L
9,3-,%#&0),%#&&*,'&2/,0+@$'-))(0%$",)(/)#'('&2/,)(.%&#%$/()$",)((,)0#05$

A,%#&M ,)8(%/)#'(/()$",)( 


,)0#05/()$",)(

"#5" A$-55($%$ %",% #09($%&)$ ,)( (=/('%#05"#5"() (,)0#05$5)&7%"#0 %"( *-%-)(


'&2/,)(. %& '&2/,0#($ 7#%" ,3&7() A &7(9() %"( A ),%#& .&($0@% %(33 -$ %"(
7"&3($%&)+1+#%$(3* %@$-$-,33+2&)(-$(*-3%&'&2/,)(%"(A),%#&$&*&0('&2/,0+
%& &%"() '&2/,0#($ #0 %"( $,2( #0.-$%)+ %& %"( 2,)8(% #0 5(0(),3 &) ,5,#0$% %"(
'&2/,0+@$&70"#$%&)#',3A %7&-3.0&%1(-$(*-3*&)#09($%&)$-$#05%"(A),%#&
,$,1,$#$*&)%"(#)#09($%2(0%%&'&2/,)(%"(A&*,%('"0&3&5+'&2/,0+"#5"A
%&,-%#3#%+'&2/,0+3&7A,$(,'"#0.-$%)+",$2-'".#**()(0%5)&7%"/)&$/('%$





 *

$#05%"()#'(%&(,)0#05$A),%#&#50&)($%"('&$%&*',/#%,3%#2(9,3-(&*2&0(+
,0.#$$(0$#%#9(%&%"(,''&-0%#05/&3#'#($,.&/%(.

(',-$(%"(A),%#&.&($0&%)(*3('%*-%-)((,)0#05$5)&7%"7(-$(%"(),%#&%&
.(%()2#0(7"(%"()%"(2,)8(%9,3-,%#&0#$$-//&)%(.1+%"(/)(.#'%(.*-%-)((,)0#05$
5)&7%"),%($

P  

"(  ),%#& 7,$ .(9(3&/(. %& ,..)($$ $"&)%'&2#05$ #0 %"( -$( &* %"( A ),%#&
/('#*#',33+#%7,$')(,%(.%&,.6-$%%"(A),%#&*&))(3,%#9(/)&6('%(.*-%-)((,)0#05$
5)&7%"),%($&*.#**()(0%*#)2$ ),%#&-$(.%&.(%()2#0(,$%&'8@$ 9,3-(7"#3(%,8#05
#0%&,''&-0%(,)0#05$5)&7%"

,%#&MA,%#&
00-,3)&7%"

 

    

3 #0'( %"( 2,)8(% %(0.$ %& /)#'( (<-#%#($ )(3,%#9( %& %"(#) $('%&) , 2(,0#05*-3
'&2/,)#$&0 &*  ),%#&$ ,0. A ),%#&$ .(2,0.$ 9#(7#05 %"(2 ,5,#0$% %"(
$('%&)&)#0.-$%)+,9(),5(
3 &#.(0%#*+-0.()9,3-(.,0.&9()9,3-(.(<-#%#($

'&22&0 ,//3#',%#&0 #$ ,//3#(. %& (2()5#05 2,)8(% (<-#%#($ 7"()( (,)0#05$


5)&7%"),%($,)("#5",0.-0'()%,#0 $,5(0(),3)-3(&*%"-217"(0%"(
),%#&#$,//)&,'"#05,9,3-(&*%"(*#)2@$(<-#%+#$'&0$#.()(.L*,#)3+L9,3-(.
*%"(),%#&#$3($$%",0%"((<-#%#($,)('&0$#.()(.L-0.()9,3-(.L *%"(
),%#&#$5)(,%()%",0%"((<-#%#($,)('&0$#.()(.L&9()9,3-(.L

  *

(3,%#9(A'&2/,)($%"('-))(0%,1$&3-%(A%&,1(0'"2,)8&),),05(&*/,$%A$
&9(),)(3(9,0%%#2(/()#&.$-'",$%"(3,$%+(,)$(3,%#9(A$"&7$7",%/&)%#&0
&) /()'(0%,5( &* %"( /,$% A$%"( '-))(0% A",$ )(,'"(. (3,%#9( A
-$-,33+'&2/,)($%"('-))(0%A9,3-(%&%"("#5"($%9,3-(&*%"(),05(1-%#09($%&)$
2#5"% ,3$&'&2/,)( %"( '-))(0% A %& %"( 1&%%&2$#.( &* %"(),05( 2(,$-)#05"&7
'3&$( %"( '-))(0% A #$ %& %"( "#$%&)#' 3&7 "( )(3,%#9( A7#33 ",9( , 9,3-( 1(3&7
I#*%"('-))(0%A#$3&7()%",0%"(/,$%9,3-(7"(%"()%"(/,$%"#5"&)3&7 *
%"()(3,%#9( A 2(,$-)(#$ I&) 2&)( %"#$%(33$#09($%&)$ %",% %"( '-))(0% A ",$
)(,'"(.&)$-)/,$$(.%"(/,$%9,3-(

-//&$(,'&2/,0+@$A$&9()%"(3,$%+(,)$",9(),05(.1(%7((0E,0. *%"(
'-))(0%A),%#&#$E%"()(3,%#9(A'&2/,)#05%"('-))(0%A%&%"("#5"($%9,3-(
&* %"#$ /,$% ),05( #$ FE EA,0. %"( '-))(0% A )(3,%#9( %& %"( 3&7 (0. &* %"(
),05( #$ F EAE "($( 9,3-($ %(33#09($%&)$ %",% %"( '&2/,0+@$A#$ '-))(0%3+
FEI&*%"(+(,)"#5",0.F I"#5"()%",0%"(+(,)3&7

 *

% )(*3('%$ %"( 2,)8(%?$ (=/('%,%#&0


&&8 9,3-( &* ,0 ,$$(% )(*3('%$ #%$ &)#5#0,3 '&$% %
2#5"% .(9#,%( $#50#*#',0%3+ *)&2 2,)8(% 9,3-( #* %"( (,)0#05 /&7() &* %"( ,$$(% ",$
#0')(,$(.&).('3#0(.$#50#*#',0%3+$#0'(#%$,'<-#$#%#&0
"( )#'(A
&&8 9,3-( ),%#& #$ %"( ),%#& &* 2,)8(% 9,3-( &* (<-#%+ %& 1&&8 9,3-( &*
(<-#%+ #( %"( 2(,$-)( &* $%,8("&3.()$?(<-#%+ #0 %"( 1,3,0'( $"((% % #$ ',3'-3,%(. ,$
*&33&7$

)#'(A
&&89,3-(),%#&M ,)8(%,3-(&*<-#%+

&&8,3-(&*<-#%+

  

3 &)#09($%&)$7"&#0$%#0'%#9(3+2#$%)-$%.#$'&-0%(.',$"*3&7($%#2,%($&*9,3-(
%"(1&&89,3-(#$,2-'"$#2/3()1(0'"2,)8*&)'&2/,)#$&0
3 )#'(1&&89,3-(),%#&$',01('&2/,)(.,')&$$$#2#3,)*#)2$*&)$#50$&*-0.()
&)&9()9,3-,%#&0
3 9(0*#)2$7#%"0(5,%#9((,)0#05$

  

**('%(.1+,''&-0%#05.('#$#&0$&0.(/)('#,%#&0,0.&%"()9,)#,13($

3 &2/3(%(3+#50&)($#0%,05#13(,$$(%$


! * 
),%#&*&)9,3-#05,$%&'8)(3,%#9(%&#%$&70/,$%/()*&)2,0'(&%"()'&2/,0#($&)%"(
2,)8(%#%$(3*)#'(%&$,3($#$',3'-3,%(.1+.#9#.#05,$%&'8@$'-))(0%/)#'(1+#%$
)(9(0-(/()$",)(*&)%"(%),#3#052&0%"$B

)#'(%&,3($,%#&M",)()#'(
(9(0-(()",)(

"( /)#'(%&$,3($ ),%#& ',0 9,)+ $-1$%,0%#,33+ ,')&$$ #0.-$%)#($K %"()(*&)(#%@$-$(*-3


2,#03+ 7"(0 '&2/,)#05 $#2#3,) '&2/,0#($
(',-$( #% .&($0@% %,8( ,0+ (=/(0$($ &)
.(1%#0%&,''&-0%%"(),%#&#$$&2(7",%3#2#%(.#0%"($%&)+#%%(33$


  

0)('(0%+(,)$,0-21()&*0(7,//)&,'"($%&2(,$-)(9,3-(",$1((0.(9(3&/(.,0.
/),'%#'(."(%7&2,6&),//)&,'"($,)(



'&0&2#' ,3-(

    

..(. #$ , *#0,0'#,3 /()*&)2,0'( 2(%"&. %& ',3'-3,%( %"( %)-(

('&0&2#'/)&*#%&*,'&)/&),%#&0 2(%"&.#$1,$(.&0%"(/,$%/()*&)2,0'(&*%"(
(0%()/)#$("(-0.()3+#05('&0&2#'/)#0'#/3(#0%"#$2(%"&.#$%&.(%()2#0(7"(%"()
%"( *#)2 #$ (,)0#05 "#5"() ),%( &* )(%-)0 &0 %"( (0%#)( #09($%(. *-0.$ %"(0 %"( '&$% &*
$-'" *-0.$ * %"( ,0$7() #$ /&$#%#9( %"( *#)2?$ 2,0,5(2(0% #$ ,..#05 %& %"(
$",)("&3.()$9,3-(1+(,)0#05(=%),)(%-)0*&)%"(2
% #$ , $#053( 9,3-(1,$(. 2(,$-)( %",% 7,$ #0%(0.(. %& (9,3-,%( 1-$#0($$ $%),%(5#($
',/#%,3/)&6('%$,0.%&2,=#2#>(3&05%()2$",)("&3.()$7(,3%",3-(&*",)("&3.()#$
9()+#2/&)%,0%,0.%"()(*&)( #$,3-(
,$(. (%)#'$$((0,$5&&.2(,$-)($&*,
'&2/,0+?$/()*&)2,0'( ',01(-$(.*&)%"($(%%#05&*%"(5&,3$',/#%,31-.5(%#05
'&)/&),%#&0 9,3-( (%' ,3-( &* %"( $%&'8 7#%" %"( "(3/ &*  ',0 1( ',3'-3,%(. ,$
*&33&7$

 M :H Y

H"()(
 M(%&/(),%#05/)&*#%,*%()%,=
M&%,3',/#%,3(2/3&+(.
H M7(#5"%(.,9(),5('&$%&*',/#%,3

   
3 %#$.#)('%3+3#08(.%&')(,%#&0&*$",)("&3.()$7(,3%"&9()%#2(
3 "(2('",0#$2&* *&)'($2,0,5(2(0%%&)('&50#>(%"('&$%&*(<-#%+#0,33
#%$.('#$#&0*)&21&,).)&&2%&%"($"&/*3&&)
3 % #$ -$(. %& ,$$($$ %"( 3#8(3+ #2/,'% &* '&2/(%#05 $%),%(5#($ &0 $",)("&3.()$
7(,3%" ,0. %"-$ "(3/ 2,0,5(2(0% %& $(3('% %",% &0( %",% 7#33 1($% $()9( %"(
$",)("&3.()$
3 2/)&9($%"(&9(),33',/#%,3(**#'#(0'+
3  #2/3(2(0%,%#&0 7#33 )($-3% #0 , 1(%%() 1-$#0($$ /()*&)2,0'( .-( %& 1(%%()
-0.()$%,0.#05&*&16('%#9($
3

33&7$2,0,5()$%&2,8(1(%%().('#$#&0$

   


3  /)&9#.($ #0*&)2,%#&0 %",% #$ &19#&-$ 1-% &**()$ 0& $&3-%#&0$ #0 2-'" %"(
$,2(7,+,$"#$%&)#',3*#0,0'#,3$%,%(2(0%

3  #$ 1,$(. &0 *#0,0'#,3 ,''&-0%#05 2(%"&.$ %",% ',0 1( 2,0#/-3,%(. 1+


2,0,5()$
3 ",)("&3.()'(0%)#'
3 "( (2/",$#$ &*  &0 #2/)&9#05 1-$#0($$-0#% /()*&)2,0'( #% .&($ 0&%
(0'&-),5('&33,1&),%#9()(3,%#&0$"#/1(%7((01-$#0($$-0#%2,0,5()$

P

  

 2(,$-)($ %"( '",05( #0 %"( 2,)8(% 9,3-( &* %"( *#)2?$ (<-#%+ 9#$]9#$ (<-#%+
#09($%2(0% ,)8(%,3-( ..(.  #$%"(.#**()(0'(1(%7((0%"('-))(0%2,)8(%
9,3-(&*,*#)2,0.%"(',/#%,3'&0%)#1-%(.1+#09($%&)$ *  #$/&$#%#9(%"(*#)2",$
,..(.9,3-( *#%#$0(5,%#9(%"(*#)2",$.($%)&+(.9,3-("(,2&-0%&*9,3-(,..(.
0((.$ %& 1( 5)(,%() %",0 %"( *#)2@$ #09($%&)$ '&-3. ",9( ,'"#(9(. #09($%#05 #0 %"(
2,)8(%/&)%*&3#&
"&-5" %"( '&0'(/% &*  #$ 0&)2,33+ -$(. #0 %"( '&0%(=% &* (<-#%+ #09($%2(0%
%"()(*&)( #% ",$ 5)(,%() )(3(9,0'( *&) (<-#%+ $",)("&3.() ,3-( &* %"( $%&'8 7#%" %"(
"(3/&* ',01(',3'-3,%(.,$*&33&7$

 M ,)8(%9,3-(&**#)2?$(<-#%+:<-#%+',/#%,3#09($%2(0%A*-0.$




 

"(2,)8(%9,3-(,..(. //)&,'"#$9()+2-'".(/(0.(0%&0%"(2,)8(%/)#'(&*%"(
%,)5(% '&2/,0+

$ %"( $",)( /)#'( #$ .(/(0.(0% &0 9,)#&-$ *,'%&)$ 9#> 2,)8(%

'&0.#%#&0$ #%$ &70 /()*&)2,0'( $&2( 0,%-),3 ',3,2#%+ #09($%&)?$ $(0%#2(0%$ &)
/()'(/%#&0$,1&-%%"(2,)8(%
(',-$(&*,33%"#$*,'%&)$%"($",)(/)#'(&*%"('&2/,0+
2,+*3-'%-,%($&#%1('&2($.#**#'-3%%&5(%%"(1($%/)#'(%"().),71,'8$,)(
3 03+&03#$%(.$",)($
3 (/(0.$&0',/#%,32,)8(%


    


*%()%"(%"&)&-5"$%-.+&*;Approaches of Equity Valuation;7(-0.()$%&&.%",%#0


%&.,+?$ $'(0,)#& -0.()$%,0.#05 &* (<-#%+ 9,3-,%#&0 2&.(3 #$ 9()+ 0('($$,)+ 1(',-$(
"+/&%"($#>(&*$&-0.#09($%#05#$%",%,0#09($%&).&($0&%/,+2&)(*&),0,$$(%%",0#%
#$ 7&)%" "#$ $%,%(2(0% 2,+ $((2 3&5#',3 ,0. &19#&-$ 1-% #% #$ *&)5&%%(0 ,0.

)(.#$'&9()(.,%$&2(%#2(#0(9()+5(0(),%#&0,0.#0(9()+2,)8(%&%&,9&#.%"#$7(
$"&-3. 80&7 %"( "&7 (<-#%+ 9,3-,%#&0 ,0,3+$% 7&)8$ ,0. 7",% ,)( 2(,0#05 &*
.#**()(0% ,//)&,'"($ 5&&. 9,3-,%#&0 2&.(3 #$ $#2/3( ,0. "(3/$ #09($%&)$ %& 2,8(
#0*&)2(..('#$#&0$

% %"#$ %#2( 7"(0 2,)8(%$ &* %"( 7"&3( 7&)3. ,)( '),$"#05 7( ,$ ,0 #09($%&) .&0?%
7,0%%&%"#08,1&-%#09($%#050&),1&-%(<-#%+9,3-,%#&0 0%"(3,$%2&0%"7(@9($((0
, $",)/ .)&/ #0 %"( /)#'($ &* $%&'8$ 7&)3.7#.( ,0+ &1$()9()$ ",9( )(5)(%%(. %"(
(=%(0%%&7"#'" 0.#,02,)8(%$,)('&))(3,%(.7#%"53&1,32,)8(%$

"($(2&9(2(0%$",9(",.,0#2/,'%#0 0.#,,3$&
-%.($/#%(&*%"($(%"()(,)(2,0+
('&0&2#',3#0.#',%&)$7"#'"$"&7%",%2,)8(%#$9()+'3&$(%&1&%%&2,0.&0( 
1-+5&&.$%&'8$"(1($%2(%"&.#$%&'&0%#0-(%&#09($%)(5-3,)3+7#%".#$'#/3#0(,33
%")&-5"%"(1,.%#2($#0%"(2,)8(%

Current equity valuations are cheap. "()( ,)( 2,0+ ('&0&2#',3 #0.#',%&)$ 7"#'"
$"&7%",%2,)8(%#$9()+'3&$(%&1&%%&2,0.&0( 1-+5&&.$%&'8$*&)3&05%()2
7(,3%"')(,%#&0(%@$",9(,3&&8,%%"($(#0.#',%&)$

3 SENSEX P/E has fallen to historical lows


"#$$"&7$%",%9,3-,%#&0$,)('"(,/,0.$2,)%2&0(+7#33$&&0*#0.#%$7,+%&(<-#%+
2,)8(%

%%"#$$%,5($%&'8$,)(,9,#3,13(,%A%"&*#%$/(,89,3-(1-%%"()(,)(0&1-+()$
7",%(3$(7(0((.%&/)&9(%",%$(0%#2(0%$,)(3&7($%3(9(3$&#*+&-",9(0&%+(%
1&-5"%(<-#%++(%#%#$%"(1($%,0.)#5"%%#2(%&,''-2-3,%(5&,"(,.,0.1-+%"(
5)(,%'&2/,0#($,9,#3,13(,%%")&7,7,+/)#'(

"($%&'82,)8(%$,)&-0.%"(7&)3.,)(0(,)#05%"(1&%%&2,0.#0.#9#.-,3$%&'8$",9(
,3)(,.+ $%,)%(. 1&%%&2#05 &-% (0'( %"&$( #09($%#05 &0 , 3&05 %()2 /()$/('%#9( ',0
$%,)% 1-+#05 $2,33 <-,0%#%#($ &* $",)($ #0 13-( '"#/ '&2/,0#($ 7"#'" ,)( ,9,#3,13( #0
/)(%%+5&&.9,3-,%#&0$,%%"(2&2(0%

&7 7#%" 2,0+ $%&'8 2,)8(%$ 1('&2( '"(,/() 7"#3$% 5)&7%" '&0%#0-($ #0 %"(
(2()5#05 2,)8(%$ ,% , "(,3%"+ /,'( /)($(0%$ #09($%&)$ 7#%" &//&)%-0#%#($ #0 '()%,#0
2,)8(%$*&)%"(3&05)-0

''&).#05%&%"#$5),/"A,%#&&* 0.#,#$'"(,/'&2/,)(%&,/,0  ,0.2,0+


.(9(3&/(.'&-0%)#($

"(&/E2()5#05 ,)8(%$
,$(.&0)&7%"=/('%,%#&0$#$B
 -$$#,
 &-%"&)(,
C 0.#,

 -)8(+
E ,-.# ),1#,
"(2&)(#33#<-#.(2()5#052,)8(%$7#%"/&%(0%#,3,)(:


*)#',0'&-0%)#($

 (0%),3 $#,0
C #..3(,$%()0

0%"($('&0.$'(0,)#&7"(0'&2/,0#($5&*&)9,3-,%#&0#(3#8(,%%"(%#2(&*2()5()
,'<-#$#%#&0 #<-#.,%#&0 $(/,),%#&0 0#%#,3 -13#' **() (%'

% %"#$ %#2( 2&$%3+

2#0&)#%+ $",)("&3.()$ .&0?% 80&7 ,1&-% "&7 %"(#) $",)($ ,)( 9,3-(. ,0. $&2(%#2($
5&&.&//&)%-0#%+&*/)&*#%2,=#2#>,%#&0#$3(*%&-%"()(*&)(
,$8$'&2/,0#($%&
$",)(%"(#)(<-#%+9,3-,%#&0)(/&)%7#%"%"(#)$",)("&3.()$

 

 "   

0 &).() %& $,*(5-,). %"( #0%()($% &* $",)("&3.()$ &* %"( 2()5#05 '&2/,0#($ 2,)8(%
)(5-3,%&) 
2,.( #% 2,0.,%&)+ *&) (0%#%#($ %& $",)( %"( 2()'",0% 1,08()?$ *,#)0($$
)(/&)%&0(<-#%+9,3-,%#&07#%"%"($",)("&3.()$

L"( *,#)0($$ &/#0#&0 )(/&)% &* %"( 2()'",0% 1,08()$ $",33 1( 2,.( ,9,#3,13( %& %"(
$",)("&3.()$ ,% %"( %#2( &* ,//)&9#05 %"( 2()5() )($&3-%#&0L 
$,#. 7"#3(
,2(0.#05 %"( '3,-$(  &* %"( 3#$%#05 ,5)((2(0% 0.() '3,-$(  3#$%(. ,$ 7(33 ,$
-03#$%(.'&2/,0#($7"#'",)(5(%%#052()5(.,)()(<-#)(.%&&1%,#0*,#)0($$&/#0#&0
&09,3-,%#&0&*$",)($1+,0#0.(/(0.(0%2()'",0%1,08()

  

"( #9#.(0. #$'&-0% &.(3#$%"($#2/3($%&*%"(9,3-,%#&02(%"&.$,9,#3,13(


-%#%
&*%(0 ')#%#'#>(. ,$ 1(#05 &* 3#2#%(. 9,3-( % #$ , '&0$()9,%#9( 2&.(3 %",% *#0.$ *(7()
,//3#',%#&0$#0%&.,+?$.+0,2#'(09#)&02(0%&7(9()$#0'(%"(9,3-,%#&0#$1,$(.&0
%"( '&2/,0+?$ *-0.,2(0%,3$ #% #$ $%#33 '&0$#.()(. %& 1( , 2&)( )(3#,13( 2(,$-)(
..#%#&0,32(,$-)(3#8(A,%#&A,%#&,0.A
,%#&,)(,3$&.#$'-$$(.$#0'(
%"(+,)(1,$(.-/&0)(,.#3+,9,#3,13(#0*&)2,%#&0#0%"(*#0,0'#,3$%,%(2(0%$&*,*#)2
(,$-)( 7"#'" 5,#0(. /&/-3,)#%+ #0 %"( )('(0% /,$% $-'" ,$    7"#'" ,)(

'&0$#.()(. %& 1( 2&)( )(3#,13( #$ ,3$& (=/3,#0(. "( #2/,'% &* 2#0&)#%+ #0%()($%
.#$'&-0%$'&0%)&3$,0.&%"().#$'&-0%$&0%"(/)#'(&*,$('-)#%+#$.(,3%#0.(/%"
<-#%+,3-,%#&0#$9()+#2/&)%,0%#0(9()+,$/('%&**#0,0'#,32,0,5(2(0%&7(9()
%"($%&'82,)8(%$,)&-0.%"(7&)3.,)(0(,)#05%"(1&%%&2,0.A,%#&#$,3$&'"(,/
,0.$%&'8$,)(,9,#3,13(,%A%"&*#%$/(,89,3-($&#*#09($%&)7,0%$%&#09($%*&),
3&05%()2,0.,3$&7"&#$7#33#05%&1(,)$&2()#$8%"(+',0#09($%0&7

   
3 09($%&) $"&-3. 0&%2,8( -$( &* &03+ &0( ,//)&,'" *&) 9,3-,%#&0K %"(+$"&-3. 5& *&)
,3%()0,%#9(,//)&,'"($
3 "(+$"&-3.,3$&5&*&)/&%(0%#,3,//3#',%#&0%&%"(9,3-,%#&0,0.%($%#05*&)#2/,#)2(0%
&*,'<-#$#%#&0&*5&&.7#33
3 *,0+#09($%&)&)'&2/,0+7,0%$%&#09($%&)%,8(&9()&%"()*#)2%"(0%"(+$"&-3.5&
*&)*#)29,3-,%#&0),%"()%"(0(<-#%+9,3-,%#&0

  

3 ,5,>#0($
0.#,0'&0&2+(9#(7,/#%,3 ,)8(%

3
&&8$
<-#%+,3-,%#&0,0. 0,3+$#$  0#9()$#%+
&)/&),%(#0,0'(
+ $7,%" ,2&.,),0

#0,0'#,3 ,0,5(2(0%
+",0,0.,#0
#0,0'#,3 ,0,5(2(0%

0,3+$#$
+ ),08  ,1&>># ,0. ,2(3, 

()()$&0
0(2/#)#',3$%-.+&*%"(.#$'&-0%(.',$"*3&72&.(3/.*1+ ,)%#0

.$#05()")#$%#,0%(01()5
3 H(1$#%($
7779,3-(,..()'&2
7772,)8(%&)'3(-8
777(<-#%+2,$%()'&2
777"16',/#%,3'&2
"%%/BAA2&0(+%()2$'&-8A
777("&7'&2

You might also like