How to Value Company Shares

A company share is usually a token of ownership that represents a vote. Each shareholder can have single share or as many as possible.

The share has its own value that is why it is necessary to know on how to value company shares.

Having a share in a company is a privilege in such a way that the shareholder can have the chance to give suggestions and recommendations. Likewise, the share also represents the vote that the shareholder has. This means that the number of votes depends on the number of shares a holder has. Usually, most companies limit the issuance of shares because having many shares also entails liability. The liability of the company to shareholders includes acquiring the benefit when the company is sold and at the same time have the right for the share of dividend.

Different Factors Involved

The valuation of shares depends on the ratios such as net tangible assets, discounted cash flow analysis, internal rate of return and a lot more. You can also compare valuation ratios between private and public company that of similar size and business operation. Regardless of the type of company you have shares you can take benefit on it because both private and public company make widget. In this sense, by employing the valuation ratio you can have the chance to obtain reasonable value of your shares. Likewise, another method of determining the value of the share is through forecasting of the future cash flow. The method is more complex as compared to comparative analysis and requires more assumptions.

On the other hand, shareholder should know the type of share he or she holds. There are three common types of share such as the ordinary, differential and preference share. If you hold ordinary share you need not worry for special restrictions and it can be divided into different classes and values. On the other hand a preference share carries a right while differential share are customized according to the voting rights. Valuation of shares is a common occurrence in case of shareholder disputes. This is one way of settling the disputes and to have graceful exit in the business. Likewise, share valuation is also done for other reasons such as claiming of inheritance.

Regardless of the reasons, knowing how to value company share is very important in order to have a clear view of the amount you have in stock. It is recommended to seek professional opinion in order to resolve the issues and at the same time obtain equity value. Keep in mind that this is a legal process that should be done by a professional that has adequate understanding about the proper valuation of company share. On the other hand, before obtaining share from a company make sure that you know the value of your share.

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