Equity Financing and Share valuation

Equity

8-1

,Learning Objectives
At the end of this session you should be able to:
▪ Be aware of shareholder rights

▪ Show how accounts can be used to value shares

▪ Calculate share values using dividends, accounts and relative
valuations

▪ Discuss the comparative advantages and disadvantages of the
three techniques

▪ Calculate growth rates and use the dividend growth model



8-2

,Terminology
▪ Shares (or Stocks)– Part ownership of a company. Also
called equity, common stock or ordinary shares
▪ Secondary Market – the market in which shares that have
already been issued can be traded
▪ Dividend - Periodic cash distribution from the firm to the
shareholders
▪ Volume – Number of shares traded




8-3

, The Importance of Share Valuation
❑Share valuation is used by:
▪ Investors and Analysts
• For investment decisions, resource allocation
• Buy undervalued, sell overpriced stocks

▪ Management
• For investment decisions
• To understand the effects of their actions
• To aim for shareholder wealth maximisation
• To determine remuneration
8-4