Valuation Of Shares.pdf

A Project Report On “VALUATION OF EQUITY SHARES OF FIVE COMPANIES” Submitted by

Mr. Vivek A. Bale Submitted for the requirement of Master of Business Administration To, The Director Aditya Institute of Management NARHE [PUNE] Affiliated to University of Pune, Academic Year, 2014-15

DECLARATION

This is to certify that, I have actually carried out and completed the project work

entitled.

“VALUATION

OF

EQUITY

SHARES

OF

FIVE

COMPANIES”. For the requirement of Master of Business Administration at Pune University during the academic year 2014-15. This Project Report has not submitted to any other University or Institutions for the award of any other degree or diploma.

Place :- Pune

Mr. VIvek A. Bale

INDEX

Chapte r No. I

II

III

IV

V VI

Sub. Chapter Chapter Name No Introduction 1.1 Introduction of Study 1.2 Objectives of Study 1.3 Hypotheses of Study 1.4 Scope of Study 1.5 Methodology of Study 1.6 Limitation of Study Conceptual Study of Valuation of Shares 2.1 Meaning & Definition of Shares 2.2 Features of Equity Shares 2.3 Types of Shares 2.4 Shares Capital 2.5 Method of Valuation of Shares Profile of five Companies under Study 3.1 Meaning & Definition of Company 3.2 Profile of Company Analysis & Interpretation of Data 4.1 Intrinsic Value 4.2 Market Value 4.3 Fair Value Observation & Testing of Hypotheses Suggestions  Bibliography

CHAPTER NO.1 INTRODUCTION OF STUDY

Page No 1 to 4

Introduction 1.1 Introduction of Study : Valuation of Shares: Valuation is the processes that links & assist to determine the worth of an asset. It can be applied to expected benefits from real as well as financial assets & securities to determine their worth at a given point of time. This key input the valuation process are;

1. The value of an asset depends on the returns it is expected to provide over the holding /ownership period. In addition to the total cash flow estimates their timing his also required to identify the return expected from the shares. 2. The required return is used in the valuation process the incorporate risk into the analysis risk denotes the chance that expected outcome would not be realized. The live of risk associated with a given cash flow has a significant bearing on its. Value that is the greater the risk the lower the value & vice years higher risk can be incorporated in to the valuation analysis by using a higher required rate to determine the present value. 3. Expected return in term of cash flow together with their time & risk in terms of the required return

1.2 Objectives of Study :1. 2. 3. 4. 5.

To Study theoretical aspects of valuation. To explain the different methods or valuation of equity shares. To ascertain the value of share of companies. To study the valuation of assets & liabilities of the company. To make some suggestions on the baits of data analysis.

1.3 Hypothesis of Study : 1. The intrinsic value of shares is fair. 2. The performance relating to shares of all five companies is good.

CHAPTER NO.2 CONCEPTUAL STUDY

2.1 Meaning & Definition of Equity Shares:All shares are those which do not enjoy any special rights in respect of payment of dividend & repayment of capital. Equity shares are risk bearing shares. All shares holder control the affairs of the company because they have right to vote. 2.2 Features of Equity Shares: 1. An equity share/ ordinary share which is not preference share. 2. The rate of dividend on equity shares is not fixed. 3. The board of directors recommends the rate of dividend which is declared in the annual general meeting. 4. The holders of equity share have voting right in proportion to the paid up equity capital of the company. 5. The equity share capital is sometimes referred to us the “Risk Bearing Capital”.

6. It is also referred to us permanent capital because equity are not redeemed in the life time of the company.

2.3 Types of Shares:There are two types of shares. 1. Preference shares 2. Equity shares Equity Share: Shares which are not preference shares are termed as “Equity Share”. These shares do not carry any preferential right.

2.4 Share Capital:The Sum total of the nominal value of shares of a company is called its shares capital. The share capital is the two types. 1. Equity share capital 2. Preference share capital 1. Equity share capital: “It is the sum total of the nominal value of equity share of a company”. 2. Preference share capital: “It is the sum total of the nominal value of preference share of company”. Classification of Shares Capital: “Accordingto Schedule -6 of the companies Act, 1956 share capital of the company should be classified in the capital of the company is divided as under”.

a. Authorized share CapitalThe amount of capital which the company is authorizes to rise by memorandum of association and with which the company is registered with the registrar of companies. This capital is also named as “Registered Capital or Nominal Capital”. b. Issued Capital“It is the nominal value of that part of the authorized capital which is allotted for cash as well as for consideration other than cash. But it cannot exceed the authorized capital. If issued capital is less than the authorized capital, then it means that there is more amount of issued capital”.

C. Subscribed Capital“It means that part of the issued capital which is allotted for cash. No distinction can be drawn between issued capital and subscribed capital and unless then shares are subscribed and paid for there cannot be issued capital”. D. Called up Capital“It means that part of the allotted share capital which has been called up by the company”. E. Paid up Capital“Paid up capital has been defined V/s 2(32) as paid up capital or capital paid up includes capital credited as paid up”.

2.5 Valuation of Shares:Valuation of share is one of the most perplexing problems that confront students of accountancy. The basic principles are by a no means difficult but their

applications call for a considerable degree of knowledgeof the various technicalities involved. 2.6 Need of Valuation:The necessity for valuation of a share arises in the following circumstances. 1. 2. 3. 4. 5. 6. 7.

For estate duty and wealth tax purpose. For amalgamation and absorption schemes. For gift Tax purpose. For discharge of debts & liabilities in exceptional nature. Conversion of preference share in to equity shares. Advancing loans on the security of shares. Purchase share for control.

2.7 Methods of Valuation:a. Net Assets Method This method is also called balance sheet method or asset, backing method or intrinsic or break-up value method. Under this method, an attempt is made to determine as to how much amount per share, for this purpose it is necessary to determine the net assets of the business as on that date net assets mean the total of third party liabilities as only realizable assets are to be taken the item such as preliminary expenses discount on debenture/ shares underwriting commission profit & loss Account (Debit Balance) etc. appearing under the heading miscellaneous expenditure & loss are not to be taken in to consideration similarly realizable value & not the book value are to be considered. The intrinsic value per share is arrived at by dividing value of net assets by the number of share issued & subscribed. Important: 1. While taking third party liabilities, even contingent liabilities are to be considered.

2. Depreciation Fund If there is a depreciation fund in respect of any fixed assed and no change in the value of that assets is given, the depreciation fund is to be deducted from the value of that asset to get its realizable value. 3. Realizable Value If realizable value of any assets are not mentioned, their book – value are to be taken as realizable value. Intrinsic Value of Each share =

Net Asset No . of Equity shares

B. Market Value Method of Yield Basis Method Under this method, prospective earning of the company are considered. There are different ways of calculating the market value as follows. 1. On the basis of dividend declared by the company Market Value =

Rate of Divided Normal rateof return X Paid up value of share

Example:Market Value =

12 15

X 100

= 80% 2. On the basis of earning It is suitable method for valuation of share when the investors are interested in knowing companies earning & the rate of profit.

Example:-

Market Value =

Rate of profit × Normal rateof return

Rate of Profit =

Profiy Available × 100 Paid up Valueof Share

Paid up value of share

Equity share capital is 10000 equity share of Rs.10each, Rs.8 paid up & the profit available is Rs.20000. The normal rate of return 20% Calculate the market value per share Rate of Profit =

=

Profit Available × 100 Paid up value of share 20000 × 100 80000

= 25% Market Value =

25 × 8 20

=10each per share 1. Capitalization Method There is another method of calculating the market value which may be termed as capitalization method. Market Value =

Profit Available for equity share holder × Normal rate of return

100

Example:If the company has subscribed capital of Rs.10000 equity share of Rs.100 each (Rs. 1000000) & the profit earned by the company Rs.150000 & the normal rate of return is 10% than they market value as per capitalization method will be as follows Market Value =

Profit Available for equity share holder × Normal rate of return

100

150000 × 100 10

=

= 1500000 Market Value Per share =

=

Capital Value No of Equity Shares

150000 10000

= 150 each share C. Fair value Method There are some accountants who do not prefer to use intrinsic value & the yield value method for ascertaining the correct value of share. They however, prescribed the fair value method is the main of intrinsic value & yield value method & the some provided a better indication about the value of share than the earlier two method. Fair value per share =

Intrinsic value+ Market value 2

CHAPTER NO.3 PROFIE OF FIVE COMPANIES OF STUDY

3.4 Meaning & Definition of Company:In common Parlance Company means an association of person formed for the economics gain of its members. However, in law any association of person for any common object can be registered as company. The object need not be economy gain of its members. Example :A Company can be formed for purpose such as charity, research advancement of knowledge etc. Definition In the Word of Justice Lindley: “ A Company it an association of main person who contribute money or money’s worth to a common stock & employ it for a company purpose. The common stock so contributed is denoted in money & is the capital of the company. The person who contributes it or to whom it belonging are members”. The companies Act defines a company as “A company formed & registered under this Act or an existing company”.

3.2 Profile of Companies 1] BAJAL AUTO LIMITED

i)

Name of Company

BAJAL AUTO LIMITED

ii) iii)

Registered Office Telephone

Mumbai- Pune Road Akurdi Pune -411035 (020)-27472851

Fax E-Mail ID Board of Directors

27406063 (020)-27407380 [email protected] Rahul Bajaj (Chairman)

iv) v) vi)

Madhur Bajaj (Vice Chairman) Rajiv Bajaj (MD) J.N.Godrej (Director) SumanKirloskar (Director) Shekhar Bajaj (Director) vii) viii)

Equity Share Capital Rate of Dividend

D.S. Metha (Director) 289367020 equity shares of Rs.10 each Rs 40 Per Share

2] SUDARSHAN CHEMICAL INDUSTRIES LIMITED

i)

Name of Company

ii) iii)

Registered Office Telephone

SUDARSHAN CHEMICAL INDUSTRIES LIMITED 162,Wellesley Road Pune – 411001 (020)-260588888

iv) v) vi)

Fax E-Mail ID Board of Directors

(020)-26058222 [email protected]. Mr. K.L.Rathi (Chairman) Mr. B.S.Metha (Director) Mr. P.R. Rathi(Director) Mr. P.P.Chhabria (Director) Mr.S.N.Indamdar (Director)

vii) viii)

Equity Share Capital

Mr. N.J.Rathi (Director) 6922775 equity shares of Rs.10 each fully

Rate of Dividend

paid up Rs 12.50 Per Share

3] MELSTAR INFORMATION TECHNOLOGIES LIMITED

i)

Name of Company

MELSTAR

INFORMATION

ii)

Registered Office

TECHNOLOGIES LIMITED Melstar House, G4, MIDC Cross Road

iii)

Telephone

“A” Anderi (East Mumbai -400093 (022)-40566464

iv) v) vi)

Fax E-Mail ID Board of Directors

(022)-28310520 [email protected]. Mr. Yeshvardhan Birla (Chairman) Mr. M.S.Adige (Director) Mr. P.V.R. Murthy (Director) Mr. Rajesh Shah (Director)

vii) viii)

Equity Share Capital

Mr.AnojMenon (Director) 14283139 equity shares of Rs.10 each fully

Rate of Dividend

paid up Nil

4] ACC LIMITED

i) ii)

Name of Company Registered Office

ACC LIMITED Cement House 121, MaharahiKarve Road

iii)

Telephone

Mumbai - 400020 (022)-33024321

iv) v) vi)

Fax E-Mail ID Board of Directors

(022)-33617440 [email protected]. Mr. N.S.Sekhsrai (Chairman) Mr. PapulHugeentobler (Deputy Chairman) Mr. KuldipK.Kaura (Director) Mr. Naresh Chandra (Director) Mr.M.L.Narula (Director) Mr. R.A.Shah (Director)

Miss. AshwiniDani (Director) Share 18795000 equity shares of Rs.10 each fully paid

vii)

Equity

viii)

Capital Rate of Dividend

up Nil

5] RELIANCE COMPNY LIMITED

i) ii)

Name of Company Registered Office

RELIANCE COMPNY LIMITED 3rd Floor Maker Chambers, 222, Nariman Point

iii)

Telephone

Mumbai - 4000020 (022)-22785000

iv) v) vi)

Fax E-Mail ID Board of Directors

(022)-22785111 invester [email protected]. Mr. Mukesh D. Ambani (Chairman) Mr. Hital R. Meswani (Director) Mr. Pawan K. Kupil (Director) Mr. Ashok Misra (Director) Mr. Ashok Misra (Director) Miss. Ramnilaila H. Ambani (Director) Mr. Yogendra P. Trivedi (Director)

Mr. Dipak C. Jain (Director) Share 1140000 equity shares of Rs.10 each fully paid

vii)

Equity

viii)

Capital Rate of Dividend

up Nil

CHAPTER NO.5 DATA COLLECTION & PRESNTATI

4.1 Data Presentation:1. Bajaj Auto Limited Balance Sheet

as on 31st March 2013 Liabilities Share capital

Reserve & Surplus General Reserve Hedge Reserve

Amt.

Amt. 289.37

2084.6 20.77

Profit & Loss A/c Secured Loans Unsecured Loans Deferred Tax Liabilities Less Deferred Tax Assets

2515.48 23.53 301.62

Current Liabilities & Provision Liabilities Provision

167.99

197.7

(Rs. In lacks)

Assets Fixed Assets Gross Block Less Depreciation Add Capital Work in Progress Expenditure to date Technical Know How Investment

Amt.

Amt.

3390.88 1912.45 1478.43

1548.29

69.86

4.28

4946 Current Assets & Loans & Advance 29.71 Inventories Sundry Debtors Cash & Bank Balance Other 3955.28 Current Assets Loans & Advance

2426.65 1528.63 9220.36

4775.20

547.28 362.76 556.49 216.42 1189.64

2872.59 9220.36

2. SUDARSHAN CHEMICAL INDUSTRIES LIMITED Balance Sheet as on 31st March 2013 Liabilities

Amt.

Share capital

Amt. 69227250

Reserve & Surplus Deferred Tax Liabilities

23710457036 120974039

Secured Loans Unsecured Loans

1451997582 511859180

Current Liabilities & Provision Liabilities Provision

1004824094 176644931

1181469025

(Rs. In lacks) Assets

Fixed Assets Gross Block Less Depreciation Add Capital Work in Progress Expenditure to date Investment

Current Assets & Loans & Advance Inventories Sundry Debtors Cash & Bank Balance

Amt.

Amt.

3322103747 1992628779 1329474968

38553227

1715028495 218574915

1374554262 1746882158 123498124

Other Current Assets Loans & Advance

57069884112

65221227 463224931

3773380702 57069884112

3. MELSTAR INFORMATION TECHOLOGIE LIMITED Balance Sheet as on 31st March 2013 Liabilities

Amt.

Share capital (289367020 equity shares of Rs.10 each)

142831390

Reserve & Surplus Deferred Tax Liabilities Secured Loans Unsecured Loans

Current Liabilities & Provision Liabilities Provisions

Amt.

(Rs. In lacks) Assets

Fixed Assets Gross Block Less Accumulated Depreciation

Amt.

Amt.

194083826 77402807

116681019

2136361

26474966

Investment Current Assets & Loans & Advance Sundry Debtors Cash & Bank Balance

42974070 5449257 48423327 219866044

Other Current Assets Loans & Advance Profit & Loss A/c

2000000

43351828 2567246

32534292

78453366 22731659 219866044

4. ACC LIMITED Balance Sheet as on 31st March 2013 Liabilities Share capital

Amt.

Amt. 187.95

Reserve & Surplus

6281.54

Secured Loans Unsecured Loans

518.05 5.77

Current Liabilities & Provision Provisions

4280.30

11273.61

(Rs. In lacks)

Assets Fixed Assets Gross Block Less Accumulated Depreciation

Amt.

Amt.

8076.95 2994.51 5082.44

Add Capital Work in Progress Investment Current Assets & Loans & Advance

1562.80

6645.24 1702.67

2925.70

11273.61

5. RELIANCE COMPNY LIMITED Balance Sheet as on 31st March 2013 Liabilities Share capital equity shares Preference Share

Amt.

Amt.

(Rs. In lacks) Assets

Fixed Assets Gross Block Less Accumulated Depreciation

1140 0.86 1140.86

Reserve & Surplus General Reserve Profit & Loss A/C Securities Premium A/c Capital Subsidy Secured Loans Unsecured Loans

Deferred Tax Liabilities Deferred Tax (Net) Current Liabilities & Provision Provisions

4.91 330.40 4260.16 80.00

4657.47 8797.73 22.75

1093.13 467.98 6046.37 219.94

Add Capital Work in Progress Assets Held for Diseorsal Investment Current Assets & Loans & Advance Inventories Sundry Debtors Cash and Bank Balance Loans and Advance

22464.23

Amt.

Amt.

21705.44 10870.50 10834.94

155.15 18.42

11008.51 1736.43

2707.01 5935.21 202.41 874.66

9719.29 22464.23

1. Bajaj Auto Limited Balance Sheet as on 31st March 2014 Liabilities Share capital

Amt.

Reserve & Surplus Deferred Tax Liabilities Secured Loans Unsecured Loan

Current Liabilities & Provision Liabilities Provision Trade Payable

29.71 133.84 157.84

(Rs. In lacks)

Amt. 289.37

Assets Fixed Assets Gross Block Less Depreciation 4620.85 Capital Work in Progress Investment 321.43

Current Assets & Loans & Advance Inventories Sundry Debtors Cash & Bank Balance

Amt. 3395.16 1912.45

1482.71 69.86 4721.91

574.28 359.89 228.78

670.82 1555.8 1789.26 4015.88 Other Current Assets Loans &

Amt.

618.05

Advance 1219.05 9247.53

2973.05 9274.53

2. SUDARSHAN CHEMICAL INDUSTRIES LIMITED Balance Sheet as on 31st March 2014 Liabilities

Amt.

Share capital

Reserve & Surplus Deferred Tax Liabilities Secured Loans Unsecured Loans

Current Liabilities & Provision Liabilities Provision

Amt. 69227250

263295626 212310169 2284775640 27770460

823157861 192896199 948512434

1964566494

(Rs. In lacks) Assets

Fixed Assets Gross Block Less Depreciation

Amt. 2092628779

Capital Work in Progress Investment

Current Assets & Loans & Advance Inventories Sundry Debtors Cash & Bank Balance

2171475379

167466556 251769915

1569123196 1842772784 338335313

Other Current

Amt.

4264104198

Assets Loans & Advance

71642266 778460194

7191045639

4600333753 7191045639

3. MELSTAR INFORMATION TECHOLOGIE LIMITED Balance Sheet as on 31st March 2014 Liabilities Share capital

Amt.

Amt. 142831390

Reserve & Surplus

160231693

Secured Loans Unsecured Loans

3637660

(Rs. In lacks) Assets

Fixed Assets Gross Block Less Accumulated Depreciation

Investment Current Assets & Loans & Advance Sundry Debtors

Amt.

Amt.

174924902 66402807

108522095

24493833

Current Liabilities & Provision Liabilities Provisions Trade payable

Cash & Bank Balance 10900102 2966648 10216510 24083260

Other Current Assets Loans & Advance

185476162 2127955

7564744 2599214 330784003

197768075 330784003

4. ACC LIMITED Balance Sheet as on 31st March 2014 Liabilities Share capital

Amt.

Amt. 187.95

(Rs. In lacks)

Assets Fixed Assets Gross Block Less Accumulated Depreciation

Amt. 9645.37 3437.84

Amt.

Reserve & Surplus

7004.32

Secured Loans Unsecured Loans

506.50 4.23

Current Liabilities & Provision Provisions

4357.25

6207.53 Add Capital Work in Progress Investment Current Assets & Loans & Advance

435.32

6642.85 1624.95

3792.45

12060.25

12060.25

5. RELIANCE COMPNY LIMITED Balance Sheet as on 31st March 2014 Liabilities Share capital equity shares Preference Share

Amt. 1140

Amt.

(Rs. In lacks) Assets

Fixed Assets Gross Block

Amt. 23495.79

Amt.

0.86

Less Accumulated Depreciation 1140.86

Reserve & Surplus General Reserve Profit & Loss A/C Securities Premium A/c Capital Subsidy Secured Loans Unsecured Loans

Deferred Tax Liabilities Deferred Tax (Net) Current Liabilities & Provision Provisions

4.91 1537.18 4260.16 80.00

5882.25 6450.01 ----

992.19 313.25 9016.39 339.98

Add Capital Work in Progress Assets Held for Diseorsal Investment Current Assets & Loans & Advance Inventories Sundry Debtors Cash and Bank Balance Loans and Advance

24134.93

12884.14 10611.65

315.28 18.42

10945.35 1736.43

3133.09 7133.48 403.81 802.77

11453.15 24134.93

Thus in this chapter 20 Balance sheets of five companies of study for two years have been collected & presented.

CHAPTER NO.5 ANALYSIS OF DATA

Analysis of Data:Valuation of Shares:

1. BAJAJ AUTO LIMITED

Net Assets

A. Intrinsic Value Method = No of Equity Shares a. Net Assets Fixed Assets Capital Work in Progress Technical Know How Investment Sundry Debtors Cash & Bank Balance Other Current Assets Loan & Advances Inventories LessLiabilities Deferred Tax Liabilities Current Liabilities Provision Net Assets

Rs.

Rs. 1478.43 69.86 4.28 4795.28 362.76 556.49 216.42 1189.64 547.28 9920.36 29.71 2526.65 1528.63 4084.99 5235.37

b. No of Equity Shares = 289367020 523537000 Intrinsic Value = 289367020

= 1.80 B. Market Value Method =

Rate of Profit × Rate of return

Paid up value of share

Profit available = Profit during the year 333670000 Profit available

a:Rate of Profit = Paid up value of share × 100 333670000

= 2893670200 × 100 = 11.54%

b:Rate of Return =

Profit available × 100 Net Assets 333670000

= 2893670200 × 100 = 63.73% 11.54

Market Value = 263.54

×

10

=1.80

Intrinsic value+ Market value C:Fair Value = 2 1.80+1.81 = 2

=1.80

2. SUDRSHAN CHEMICAL INDUSTRIES LIMITED Net Assets A.Intrinsic Value Method = No of Equity Shares

a. Net Assets Fixed Assets Capital Work in Progress Technical Know How Investment Sundry Debtors Cash & Bank Balance Other Current Assets Loan & Advances

Rs. Rs. 1329474968 385553527 218574915 1374554262 1746882158 123498124 65221227 46322491 570698411 2

Less-

Liabilities Deferred Tax Liabilities Current Liabilities Provision

120974039 1004824094 176644931 130244306 4 440454104

Net Assets

8 b. No of Equity Shares = 26922775 Intrinsic Value =

4404541048 6922775

= 636.23 B. Market Value Method =

Rate of Profit × Rate of return

Paid up value of share

Profit available = Profit during the year 324299577

Profit available

a:Rate of Profit = Paid up value of share × 100

=

324299577 × 100 69227750

= 468.45% b:Rate of Return =

Profit available × 100 Net Assets 324299577

= 4404541048 × 100 = 7.36% Market Value =

468.45 × 10 7.36

=636.48

Intrinsic value+ Market value C:Fair Value = 2

=

6366.23+ 636.48 2

=636.35

3. MELSTAR INFORNMATION TECHNOLOGIES LIMITED Net Assets

A. Intrinsic Value Method = No of Equity Shares a. Net Assets Fixed Assets Investment Sundry Debtors Cash & Bank Balance Loan & Advances LessLiabilities Current Liabilities Provision Net Assets

Rs. Rs. 166681019 2000000 43351828 2567246 32534292 197134385 42974070 549257 48423327 48423337

b. No of Equity Shares = 14283139

148711058

Intrinsic Value = 14282139 = 10.39 B. Market Value Method =

Rate of Profit × Rate of return

Paid up value of share

Profit available = Profit during the year 1426249

Profit available

a:Rate of Profit = Paid up value of share × 100 14626249

= 142831390 × 100 = 10.24% Profit available × 100 Net Assets

b:Rate of Return =

14626249

= 148711058 × 100 = 9.83% Market Value =

10.24 × 10 9.83

=10.41

Intrinsic val ue+ Market value C:Fair Value = 2

=

1041+1041 2

=10.41

4.ACC LIMITED Net Assets A. Intrinsic Value Method = No of Equity Shares

a. Net Assets Fixed Assets Capital Work in Progress Investment Loan & Advances LessLiabilities Current Liabilities Provision Net Assets b. No of Equity Shares = 18795000 Intrinsic Value =

699331000 1875000

= 37.20

Rs.

Rs. 5282.44 1562.80 1702.67 2925.70 11273.61 4280.30 6993.31

B. Market Value Method =

Rate of Profit × Rate of return

Paid up value of share

Profit available = Profit during the year 112094000 Profit available a:Rate of Profit = Paid up value of share × 100 112094000

= 187950000

×

100

= 59.64% b:Rate of Return =

Profit available × 100 Net Assets 112094000

= 699331000 × 100 = 16.02% 59.64

Market Value = 16.02 × 10 =37.22 Intrinsic value+ Market value 2

C:Fair Value =

= =37.21

37.20+ 37.22 2

5.RELIANCE COMPANY LIMITED Net Assets

A. Intrinsic Value Method = No of Equity Shares a. Net Assets Fixed Assets Capital Work in Progress Assets Held for Disposal Investment Inventories

Rs.

Rs. 10834.94 155.15 18.42 1736.43 2707.01

Sundry Debtors Cash & Bank Balance Loan & Advances LessLiabilities Deferred Tax Liabilities Deferred Sales Tax Current Liabilities Provision Net Assets

5935.21 202.41 874.66 22464.23 467.98 1093.13 6046.37 219.94 7827.42 14636.81

b. No of Equity Shares = 1140000 Intrinsic Value =

1463681000 1140000

= 128.39 B. Market Value Method =

Rate of Profit × Rate of return

Paid up value of share

Profit available = Profit during the year 33040000 Profit available a:Rate of Profit = Paid up value of share × 100 33040000

= 11400000 × 100 = 2.89% Profit available × b:Rate of Return = 100 Net Assets 33040000

= 1463681000 × 100 = 2.25%

2.89

Market Value = 2.2 5 × 10 =128.44

Intrinsic value+ Market value C:Fair Value = 2 128.39+128.44 = 2

=128.41

1. BAJAJ AUTO LIMITED

Net Assets A. Intrinsic Value Method = No of Equity Shares

a. Net Assets Fixed Assets Capital Work in Progress Investment Sundry Debtors Cash & Bank Balance Other Current Assets Loan & Advances Inventories LessLiabilities Deferred Tax Liabilities Current Liabilities Provision Trade Payable Net Assets

Rs.

Rs. 1482.71 69.86 4721.91 359.89 228.78 618.05 1219.05 547.28 9247.53 29.71 670.82 1555.8 1789.26 5201.94

c. No of Equity Shares = 289367020 52194000

Intrinsic Value = 289367020 = 1.79 B. Market Value Method =

Rate of Profit × Rate of return

Paid up value of share

Profit available = Profit during the year 333973000 Profit available a:Rate of Profit = Paid up value of share × 100 333973000 = 2893670200 × 100

= 11.54% Profit available × b:Rate of Return = 100 Net Assets

333973000

= 520194000 × 100 = 64.20% 11.54 Market Value = 64.20 × 10

=1.79

Intrinsic value+ Market value C:Fair Value = 2 1.79+1.79 = 2

=1.79

2. SUDRSHAN CHEMICAL INDUSTRIES LIMITED Net Assets

A. Intrinsic Value Method = No of Equity Shares c. Net Assets Fixed Assets Capital Work in Progress Investment Inventories Sundry Debtors Cash & Bank Balance Other Current Assets Loan & Advances

Rs. Rs. 2171475379 167466556 251769915 1569123196 1842772784 338335313 71642266 778460194 719104563 9

Less-

Liabilities Current Liabilities Provision Trade Payable

823157861 192896199 948512434 196456649 4 522647914

Net Assets

5 d. No of Equity Shares = 6922775

5126479145 Intrinsic Value = 6922775

= 754.97 B. Market Value Method =

Rate of Profit × Rate of return

Paid up value of share

Profit available = Profit during the year 361510643 Profit available

a:Rate of Profit = Paid up value of share × 100

361510643

= 5226479145 × 100 = 522.20% Profit available × b:Rate of Return = 100 Net Assets 361510643

= 5226479145

×

100

= 6.91% Market Value =

522.20 × 10 6.91

=755.71

Intrinsic value+ Market value C:Fair Value = 2 754.91+755.71 = 2

=755.34

3. MELSTAR INFORNMATION TECHNOLOGIES LIMITED Net Assets

A. Intrinsic Value Method = No of Equity Shares a. Net Assets Fixed Assets Investment Sundry Debtors Cash & Bank Balance Loan & Advances Other Current Assets LessLiabilities Current Liabilities Provision Trade Payable Net Assets

Rs. Rs. 108522095 24493833 185476162 2127955 2599214 7564744 330784003 10900102 2966648 10216510 24832060 89951943

c. No of Equity Shares = 14283139 89951943

Intrinsic Value = 14282139 = 6.29 B. Market Value Method =

Rate of Profit × Rate of return

Paid up value of share

Profit available = Profit during the year 14617030

Profit available

a:Rate of Profit = Paid up value of share × 100 14617030

= 142831390 × 100 = 10.23% b:Rate of Return =

Profit available × 100 Net Assets 14617030

= 89951943 × 100 = 16.24% 10.23

Market Value = 16.24 × 10 =6.29

Intrinsic value+ Market value C:Fair Value = 2

=

6.29+ 6.29 2

=6.29

4.ACC LIMITED Net Assets A. Intrinsic Value Method = No of Equity Shares

a. Net Assets Fixed Assets Capital Work in Progress Investment Loan & Advances LessLiabilities Current Liabilities Provision Net Assets c. No of Equity Shares = 18795000

770300000

Intrinsic Value = 18795000 = 40.98

Rs.

Rs. 6207.53 435.32 1624.95 3792.55 12060.25 4337.25 7703.00

B. Market Value Method =

Rate of Profit × Rate of return

Paid up value of share

Profit available = Profit during the year 132675000 Profit available a:Rate of Profit = Paid up value of share × 100 132675000

= 187950000

×

100

= 70.59% b:Rate of Return =

Profit available × 100 Net Assets 132675000

= 770300000 × 100 = 17.22% 70.59

Market Value = 17.22 × 10 =40.99 Intrinsic value+ Market value 2

C:Fair Value =

=

40.98+40.99 2

=40.98

5.RELIANCE COMPANY LIMITED Net Assets A. Intrinsic Value Method = No of Equity Shares

a. Net Assets Fixed Assets Capital Work in Progress Assets Held for Disposal Investment Inventories Sundry Debtors Cash & Bank Balance Loan & Advances LessLiabilities Deferred Tax Liabilities

Rs.

Rs. 10611.65 315.28 18.42 1736.43 3133.09 7173.48 403.81 802.77 24134.93 313.25

Deferred Sales Tax Current Liabilities Provision Net Assets

992.19 9016.39 339.98 10661.81 13473.12

c. No of Equity Shares = 1140000

1347312000 Intrinsic Value = 1140000

= 118.85 B. Market Value Method =

Rate of Profit × Rate of return

Paid up value of share

Profit available = Profit during the year 153822000 Profit available

a:Rate of Profit = Paid up value of share × 100

=

153822000 × 100 11400000

= 13.49% b:Rate of Return =

Profit available × 100 Net Assets 153822000

= 1347312000 × 100 = 11.41% 13.39

Market Value = 11.41 × 10 =118.22

Intrinsic value+ Market value 2

C:Fair Value =

=

118.85 +118.22 2

=118.53

CHAPTER NO. 6 OBSERVATIONS & TESTING OF HYPOTHESE

Observations & Testing of Hypotheses:A. Observations The ranking of companies is as follows For the Financial year 2012-13 Sr.No. Name of Companies 2

5 4 3

1

Sudarshan Chemical Industiries Ltd. Reliance Company Ltd ACC Ltd Melstar Information Technologies Ltd. Bajaj Auto Ltd.

Intrinsic Value of Shares (Rs) 636.23

Market Value of Shares (Rs) 636.48

Fair Value of Share (Rs) 636.35

Rank

128.39

128.44

128.41

2

37.20 10.41

37.22 10.41

37.21 10.41

3 4

1.80

1.81

1.80

5

1

For the Financial year 2013-14 Sr.No. Name of Companies 2

5 4 3

1

Sudarshan Chemical Industiries Ltd. Reliance Company Ltd ACC Ltd Melstar Information Technologies Ltd. Bajaj Auto Ltd.

Intrinsic Value of Shares (Rs) 754.97

Market Value of Shares (Rs) 755.71

Fair Value of Share (Rs) 755.34

Rank

118.85

118.22

118.53

2

40.98 6.29

41.04 6.29

41.01 6.29

3 4

1.79

1.79

1.79

5

Comment: 1. First ranking company is the Sudarshan Chemical Industries Ltd. 2. Last ranking company is the Bajaj Auto Ltd.

1

B) Testing of Hypotheses 1. The performance relating to valuation of shares all companies is good. The hypotheses are partly proved because as per the ranking of shares value two companies is good. And remaining three companies performance is not as per ranking shown on page no.57 2. Intrinsic value of all five companies is fair The hypothesis is partly proved because three companies intrinsic value is good as it is more than face value. But remaining two companies intrinsic value is less than face value as indicated in chapter –VI

CHAPTER NO.7 SUGGESTIONS

SUGGESTIONS The following suggestions can be made after study of valuation of shares of five companies. Out of five companies under study first two companies are having good performance relating to shares, because their fair value of shares is less than sufficient. So their improve their profit to increase share value.

Intrinsic value of six companies is not sufficient, so they should improve value of shares.

BIBLOGRAPHY BOOKS :1. Jain P.K. and Khan M.Y. Financial Management text, problems & Cases, Tata McGraw –Hill Publishing Company Limited, 5th Edition, New Delhi 2. Dr. Maheshwari S.K. and Dr. Maheshwari S.N. Advanced Accountancy, 8 th Revised Edition 2001, Vikas Publication house Private Limited ,New Delhi.

3. Dr. Joshi C.M. and PatkarM.G. ,Advanced Accounting , 1 st Edition as per new syllabus, Feb-2003. 4. Agrawal T.S., Gupta S.C. and Shukla M.C. , Advanced Accounting. 5. S.K.R. Paul, Corporate Accounting , New Central Agency Public Ltd. Published May 2005