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Valuation Of Shares Interview Questions & Answers - Learning Mode
COOLINTERVIEW.COM CORPORATE ACCOUNTING INTERVIEW QUESTIONS VALUATION OF SHARES INTERVIEW QUESTIONS QUESTIONS & ANSWERS - LEARNING MODE

Valuation Of Shares Interview Questions & Answers - Learning Mode

Value of a share means the money value attached to the share. It may be the book value (value written in the books of account),or the price at which it can be sold or purchased. The value of every share is printed in front of the shares. Such a value is called as par value or face value of shares. The face value is assigned by the promoters of joint stock company and is given in the memorandum of association. Except the face value, it has also get market value on stock exchange market which may be differ from face value. The market value of a share is determined by the demand and supply. Such a value is affected by the action and opinions of investors and their fear, guess, investment policy etc.

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Valuation Of Shares Interview Questions & Answers - Learning Mode
Try Valuation Of Shares Interview Questions & Answers - Exam Mode
Question: Name the methods of valuation of shares?

Answer: a) Intrinsic Value Method
b) Yield Method
c) Earning Capacity Method Source: CoolInterview.com
Question: What is yield value of shares?

Answer: This value of a share is also known as Capitalized value of Earning Capacity. Normal rate of return in the industry and actual or expected rate of return of the firm are taken into consideration to find out yield value of a share.

Source: CoolInterview.com
Question: Explain the meaning of Rights Issue?

Answer: A rights offering (issue) is an issue of rights to a company's existing shareholders that entitles them to buy additional shares directly from the company in proportion to their existing holdings, within a fixed time period.
Source: CoolInterview.com
Question: What is the book value of shares?

Answer: Book value of share is the value stated in the Articles of Association. It is also known as Face Value or Nominal value and shown in the books of accounts and Balance Sheet. Source: CoolInterview.com
Question: How to value Rights Issue?

Answer: a) Value of Right = Market Price ? Average Price
b) Value of Right = Number of new shares/ Total number of all shares x (Market Price?Issue price of new share).
Source: CoolInterview.com
Question: What is the par value of shares?

Answer: Par value is the nominal or face value of a share.
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Question: State the importance of valuation of shares?

Answer: a) The importance of valuation of shares also arises in case of amalgamation of companies when there is the need for having a fair valuation of shares to settle the purchase price.
b) Sometimes preference shares and debentures are converted into equity shares as per the terms of issue. In such case, a fresh valuation method should be adopted for equity shares to calculate the exchange ratio.
Source: CoolInterview.com
Question: Mention the internal factors affecting valuation of shares.

Answer: 1. Net worth of Assets (realizable value of all assets minus all liabilities)
2. Earning capacity of assets
3. Return on investments
4. Profit after tax
5. Profit available to equity shareholders
6. Earnings per share
7. Dividend per share or Rate of dividend.
Source: CoolInterview.com
Question: State the precautions to be taken while using Net Asset Method of valuation of shares?

Answer: i) Assets should be taken at Book value, only when market value or realizable value is not available.
ii)Adequate provision should be maintained for depreciation.
iii)For investments outside the firm, (e.g., investment in shares, debentures of other companies etc.) and inventory, current market price should be applied.
iv) In case of bills receivable and trade debtors, adequate provision for bad and doubtful debts should be made.
Source: CoolInterview.com
Question: What is Net Asset Method of valuation of shares?

Answer: This method is also known as Intrinsic Value Method, Asset Backing Method, Equity Method, Assets Balancing Method or Assets Valuation Method. Generally, under this method, value of one equity share is calculated as under:
Value of one equity share = Net Assets ?mber of equity shares.
Source: CoolInterview.com
Question: What is the market and fair value of shares?

Answer: Market Value: Market value of a share is the price at which the share is purchased or sold in the market. For all practical purposes, stock exchange quoted price is taken as the market price.
Fair Market Value: It is the price of a share which agreed in an open and unrestricted market between knowledgeable and willing parties dealing at arm?s length who are fully informed and are not under any compulsion to transact.
Source: CoolInterview.com
Question: What do you mean by valuation of shares?

Answer: Value of a share means the money value attached to the share. It may be the book value (value written in the books of account),or the price at which it can be sold or purchased. Source: CoolInterview.com
Question: What is Yield method for valuation of shares?

Answer: Yield value of a share is also known as Capitalized value of Earning Capacity. Normal rate of return in the industry and actual or expected rate of return of the firm are taken into consideration to find out yield value of a share. Instead of rate of return (ROI),rate of dividend may also be taken.Yield refers to the earning or productivity of a firm in relation to its investments. Such yield may be Earning Yield or Dividend Yield.
Earning Yield = Profits available to equity shareholders Source: CoolInterview.com
Question: Mention the external factors affecting valuation of shares.

Answer: 1. General economic condition of the country.
2. Political and social environment.
3.International economic scenario.
4. International political environment.
5. Demand for shares.
6. Growth prospect of the industry.
7.Transparency in information flow.
8.Insider trading
9.General impulse in capital and securities market.
10. Investor?s education and their perspective towards capital market. Source: CoolInterview.com
Question: What is Earning Yield Method of valuation of shares?

Answer: Generally for valuation of equity shares Earning Yield method is applied.Under this method value of each equity share is calculated as under:
Expected Rate of Earnings ?rmal rate of return x Paid up value of a share.
Sometimes actual rate of earnings is used in place of Expected Rate of Earnings.
Source: CoolInterview.com
Question: What is the intrinsic value of shares?

Answer: Intrinsic Value is the realizable value of total net assets divided by the number of shares outstanding is the intrinsic value of a share This value is also known as Asset Back Value of shares. Source: CoolInterview.com
Question: What is quoted value of a share?

Answer: Quoted value is the value of a share stated by the stock exchange at the end of a day?s trade.
Source: CoolInterview.com
Question: How is value of each equity share calculated under
Dividend Yield Method?


Answer: Under this method value of each equity share is calculated as under:
Rate of Dividend ?rmal rate of return x Paid up value of a share
Source: CoolInterview.com

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