An idiot’s guide to stock valuation
Every company listed in the NSE, will in the course of doing its business collect revenues. These are also referred to as sales, and sometimes, turnover.

From the revenues collected, the company pays out all expenses it incurs in doing business. What is left behind is usually referred to as Profit.

From this profit the company pays its taxes, and financial costs. The balance is known as Net Profit or profits attributable to share holders.

All the while, the company owns its own Assets, as well as owes Liabilities. When you deduct the liabilities from the assets, the resulting figure is referred to as Share Capital. To this share capital, add on the Net Profit. The resulting figure is the Net Worth of the company. It is also referred to as the Shareholders’ Equity.

Divide this figure by the total number of outstanding shares of the company and you get the Net Value per share!

This value per share can also be referred to as the share’s “intrinsic value”. Finally, compare this value to the trading price of the share. If the price is less than this value… then the share is undervalued, if not, the share is overvalued!

So, now you can comfortably invest in shares! It does seem simple does it not?

Actually, it is not so simple..the above has not considered the earning potential of the company neither has it factored in the returns on investments the company made over the year of whose returns have not been actualized..plus, you can not tell whether your intrinsic value is actually the correct one!

Nevertheless, every participant in the stock market ought to, in the very least, grasp the above concept in relation to every listed company. Nothing about it is idiotic. 



“By wisdom a house is built, and through understanding it is established And by knowledge shall the chambers be filled with all precious and pleasant riches."
Proverbs 24:4 (KJV)