An up-and-coming modern investment business is impossible without such a procedure as valuation of the company's shares. This process is complex and time-consuming, but let's try to consider everything in order. First, let's look at what securities are and what their role is for modern business.
What are promotions
In a broad sense, stocks are such securities that indicate the contribution of a certain amount of funds to the authorized capital of an enterprise, occupying both a small and a significant part of it, and which, as a result of the successful activity of a business representative, allow their holder to make a profit.
This type of obligation does not have a clear fixed nominal rate and may vary depending on fluctuations in indicators such as supply and demand, therefore, the market valuation of shares is a fairly popular and useful procedure in the modern market.
It is also worth noting that from the point of view of legal obligations, the holder of a package of mutual documents has more authority than the holder of several units of such securities. Therefore, it is extremely important to predict their value in the long term, especially in the case of large investment in the business.
The need for securities valuation
So, we have found out the importance of unit securities in modern entrepreneurship, and now let's take a closer look at why we still need to calculate their value and why this procedure is needed.
An assessment of the market value of a block of shares is essential in the following cases:
- when transferring the rights of temporary securities management to a trustee;
- upon receipt of bank borrowed funds and an appropriate assessment of the cost of equity;
- upon acquisition of shares in the authorized capital of another business entity;
- when carrying out any procedures, including restructuring of the enterprise (change of form of activity, merger, liquidation and acquisition);
- as well as the procedure for the sale of securities, which is most common.
After such an operation, the risk of concluding disadvantageous transactions from the point of view of investment policy business. Valuation of stocks is the first step towards transparent business management and understanding how things are in the securities market.
From a legislative point of view
In the modern financial market, a situation often arises in which free funds are accumulated by certain business representatives, however, completely different business entities require investment investments, which entails an uneven distribution of funds. To this end, there is state regulation of the movement of securities to facilitate the uninterrupted circulation of finances, which is governed by the Law of the Russian Federation “On the Securities Market” No. 93 of 04/22/1996, as well as the Law of the Russian Federation “On Joint Stock Companies” No. 208 of December 26, 1995.
According to these regulations, stock valuation is carried out in the cases described above, and is a procedure not only to determine their net worth, but also to identify their position in the modern market. This process is fully governed by law at every stage.
Types of value of the Central Bank
The valuation of shares of a business entity largely depends on their types of value, which differ by the following:
- nominal - represents the ratio between the total value of the authorized capital and the number of issued securities;
- emission - the value that is established at the time of initial issue;
- balance sheet - it is determined in the same way as the nominal one, but at the same time the volume of obligations of the business entity is deducted from the amount of the authorized capital, used for reflection in accounting and financial accounting;
- liquidation - is not used until the company ceases to carry out its operational activities, represents the sum of the assets of the company after the repayment of all obligations;
- investment - determined by the investor on the basis of many factors and represents such a value that would satisfy the demand in the stock market;
- Estimated - is the result of an analysis based on changes in the exchange rate of shares;
- market - the real price for which the paper is sold on the stock exchange.
Since the latter indicator is the most significant in the investment activity of the enterprise, we dwell on it in more detail.
How the market value of stocks is formed
No matter how paradoxical it may sound, but the valuation of shares for sale is carried out only if they have their own market value, which is inherent in not all mutual documents. Securities endowed with this property, as a rule, are subject to circulation on the stock market on an ongoing basis, while they must have market quotes, which are determined by professional participants in the stock market. In addition, blocks of such shares are involved in real transactions in which independent sellers and buyers are involved in an open information and competitive environment.
The market value of these securities depends on the following indicators:
- size of the estimated package;
- the conditions under which equity is distributed;
- the presence of an allowance (in the case of the controlling factor of the package) or a discount (if the size of the package is insufficient for control) when purchasing securities.
Assessment Approaches
Valuation of shares in an OJSC is a rather individual process, therefore there are several approaches to this procedure:
- Costly. It is used if a legal entity acquires securities of an enterprise that is unable to compete with a shareholder and produces similar products. Therefore, in this case, the buyer, as a rule, is not ready to pay a lot for an equivalent business, hence the cost is determined.
- Comparative. It is based on information about transactions that were previously conducted with the participation of similar business entities. As a rule, this approach is applied only in case of circulation of securities on the open market.
- Profitable. Based on the buyer's interest in the profit that he can get from the acquisition of a package of securities. Agree, no one is interested in investing in a business that has a negative reputation in a competitive market.
Stock Valuation Methods
The above approaches are just a general qualification of varieties of determining the value of securities. In addition to this classification, there are stock valuation methods that are selected depending on the results of the analysis of the financial activities of the business entity.
Here are the main of these methods:
- use of mathematical weighting;
- analysis capital market and related transactions;
- method discounted cash flows;
- capitalization of revenue streams;
- the value of net current assets.
Stages of valuation of shares
Assessment of the market value of shares as a result of using the above approaches and methods should show the final value, which will be the result of this time-consuming process, and it is divided into the following stages:
- Determination of the focus of the valuation procedure and the cost standard dependent on it.In addition, at the first stage, the volume of information that is publicly available and the percentage of securities being evaluated are analyzed.
- The situation of the business entity in the market is analyzed taking into account the industry factor, including the prospects of the business direction.
- At this stage, the appraiser, based on the information received, is determined with the methodology by which he will work further.
- A determination is made of the quality and completeness of the information provided, its sufficiency for further evaluation.
- Based on the obtained indicators, the forecasting of deferred income is carried out.
- The evaluator concludes whether the enterprise is capable of carrying out further business activities, or whether it is on the verge of liquidation.
As a result, we have complete and comprehensive information not only about the value of the shares, but also about the general picture of the state of business of the shareholder.
How to make investments profitable?
Undoubtedly, the valuation of stocks and bonds is an indispensable process in the modern investment market, but it is also worth a lot to acquire securities correctly. We all understand that this is a risky business, therefore, when investing our funds in someone else's business, we should also conduct our own, static assessment.
As for the risks, they can depend on many factors. For example, the results of the assessment did not show positive effectiveness in a particular investment project. However, this does not mean at all that the rights in this transaction are worthless, you should consider it on the other hand - analyze the optional characteristics and decide what can be fixed.
In any case, the process of buying securities can be divided into stages and track how the company will behave in the future in a competitive environment.
Immediate Prospects for the Assessment of the Central Bank
Unfortunately, at the moment in the modern domestic stock market, stock valuation is far from a well-coordinated process. And alas, the fault is the imperfect regulatory mechanism, which, with some efforts, could adequately regulate the relations between the participants in the purchase and sale of securities.
The realities of modern domestic business are as follows: stockholders continue to falsify the financial results of the enterprise, while artificially changing stock prices on the stock market, which does not mean their real value, but their inability to choose the right marketing policy.
