Seniors please tell me how to find break-up value of share


many thanks

break-up value of share?i couldn't understand your question fatima?

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This is one of the methods used for valuation of businesses or enterprises opposite to going concern value method.

What is Break-up Value:

Break-up Value is also called as:
· Private Market Value
· Sum-of-the-Parts Value
· Intrinsic Value
· Net Assets Value
· Net Worth per Share
· Gone Concern Value
· Liquidation Value


Definition:

It is net asset value of a business, assumed as "gone concern" instead of "going concern". Being the most conservative method of valuation it accounts for forced/fire sale value of the assets in an assumed distress situation.

In layman language, how much a company would fetch (be worth) to shareholders/owners if it were stripped down and sold off in pieces.


Calculation Method:

Breakup value is calculated by taking the current market value of all assets of the business, then deducting the liabilities, preference shares and reasonable liquidation cost. The resulting value is what you would end up with if you sold off the assets and paid off all the liabilities. That is the value of the business on a "breakup" basis.


Formula to Calculate Break Up Value:

Value of Total Assets – (Total Liabilities + preference shares + reasonable liquidation fees)= Break up Value.


To find out Break-up value per share or intrinsic value of shares:

Break-up Value / Total No. of Ordinary Shares or Equity Shares

Or

Net Assets - Preference Shares – Reasonable Liquiqation Fees / Total No. of Ordinary or Equity Shares


Application or Usage:
Break-up Value analysis is often carried out for investment & acquisition decisions by prospective investors/fund managers/stock analysts etc. The more the break-up value the more the credible amount of assets of the company.

This technique is sometimes used to assess financial worth of companies whose shares are not actively traded in stock exchange.



Wish you Good Luck.


Links for your review:

http://www.streetdirectory.com/trave...kup_value.html

https://www.macabacus.com/valuation/methods

https://www.macabacus.com/valuation/sum-of-the-parts

http://www.slideshare.net/AnkitAgarw...tion-of-shares

http://accountlearning.blogspot.com/...of-shares.html


http://www.wisegeek.com/what-is-a-breakup-value.htm#


http://www.rohanchambers.com/Courses.../Notes(9)a.htm

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As per ICAP's TR 22

TR-22 Book Value per Share
THE ISSUE

Different practices and policies are being used for computing book value (commonly known as break-up value in Pakistan) of shares. For instance in some cases all the assets including intangibles, deferred costs and fictitious assets are included in considering the book value without regard to their recoverability. In some other cases, intangibles are excluded from the shareholders’ equity. Practices also vary regarding adjustment of contingent and other losses.

TECHNICAL COMMITTEE RECOMMENDATIONS

Book value per share in the equity capital of the company is the amount each share is worth on the basis of carrying value per balance sheet, prepared in accordance with a framework of recognized accounting standards. Such standards provide that:-

(a) An asset is a resource controlled by the enterprise as a result of past events and from which future economic benefits are expected to flow to the enterprise.

(b) A liability is a present obligation of the enterprise arising from past events, the settlement of which is expected to result in an outflow from the enterprise of resources embodying economic benefits.

Computation of Book Value Per Share

Book value per share is computed by dividing shareholders’ equity with the number of shares issued. Shareholders’ equity includes:-

a) Paid up capital

b) Revenue reserves and retained earnings, (less accumulated losses if any).

c) Capital reserves

Where the auditors have issued a qualified report and the qualification has been quantified in monetary terms, that amount should be deducted from equity.

Where the qualification is not quantified then the members issuing a certificate regarding book value should mention this fact in the certificate.

d) Surplus created as a result of revaluation of fixed assets.

If the balance sheet of an entity includes balance of surplus on revaluation, the book value per share should be computed separately both, including and excluding such surplus, to enable comparability with those entities where fixed assets have not been revalued.

The book value for any specific purposes in accordance with any statute would have to be computed per requirements or criteria laid down in that respect by the concerned regulatory agency or as set out in the relevant law.

(151st meeting of the Council – April 26-27, 2002)