Share Valuation

Long term investors looking for dividend payments from shares or short term investors looking for capital appreciation in shares? These are the basics for traders of shares in listed companies as the share values are already prescribed by the market. But for shares in private companies (usually long term investments) the valuation position is a lot more complex as there is no clearly prescribed valuation available.
















Valuing a shareholding is slightly different to valuing a business or a company as a whole as the shareholding represents only a portion of ownership held in a company. The value attached to individual shareholdings are more restrictive as limited voting rights or limited influence in a company means limited value. Hence the cash or income generates by the shares themselves would usually contain bulk of the value. As such an income approach or dividend yield method of valuing shares is more appropriate for shareholding which are small (less than 25%).

Also in such a case minority discounts are applied to reflect the restricted nature of the shareholding and the range of discounts to be applied is judgemental as it varies from 20% to 80%. For shareholding between 25% to 50% are classed a significant influence holding and a market approach could be used to estimate the value. However a minority discount would still be required but would be less than the discounts applied to less than 25% shareholdings. For shareholdings over 50% give control to the share holder and market based valuation method are more suited and a control premium would need to be added.