Valuation of Shares of a Company | Certified Appraisers

Valuation of Shares of a Company 1

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Companies and their actions

The shares of a company are like the beats of its heart in the financial market: every movement, every fluctuation, every strategic decision resonates in the economic ecosystem, from the moment a company decides to go public, its shares become a A tangible reflection of its performance, its growth potential and its ability to generate value for investors, each purchase and sale of shares is an expression of confidence or uncertainty, of optimism or skepticism, of expectations met or disappointed. 


Shares not only represent a stake in the ownership of the company, but also serve as indicators of its financial health, its competitiveness in the market and its ability to innovate and adapt to changes, in the complex and dynamic world of finance. In corporate governance, stocks are the vehicle through which fortunes are built, calculated risks are taken, and interdependent relationships are forged between companies, investors, and markets.

Type of shares in a company

Ordinary shares

Grant the holder political rights to intervene in the company's shareholders' meeting, allowing him to express opinions and exercise his vote. In addition, the shareholder has the right to receive dividends, the amount of which is usually determined according to corporate policy. These assets are usually issued with the in order to boost the growth of the company without resorting to debt.


Preferred stock

The holder of this type of share has a higher status than common shareholders, unlike ordinary shares, these guarantee the right to receive a dividend established in advance, that is, they ensure that it is positive, and they also offer the possibility of reimburse the investment in the event of dissolution of the company.


Convertible shares 

They can undergo transformations or modifications, for example, it is possible to convert them into bonds after a certain period or, conversely, a bond can be converted into a share.


Non-voting shares

These shareholders have financial rights but do not participate in voting during meetings.

How to trade stocks?

Trading stocks involves buying and selling these securities in the financial market with the aim of making profits.

Some basic steps to trading stocks:


  1. Financial education: Before starting to trade, it is important to have at least a basic understanding of the financial situation, the different types of stocks, the factors that can affect stock prices and investment strategies.
  1. Establish objectives and strategies: Define your financial goals and the level of risk you are willing to take, develop an investment strategy that aligns with your objectives, whether short, medium or long term, and consider whether you want to focus on individual stocks or invest through mutual funds, ETFs or other instruments.
  1. Open a brokerage account: You will need a brokerage account to buy and sell stocks. Research different brokers and choose one that offers low commissions, an easy-to-use trading platform, and research and analysis tools.
  1. Perform analysis: Before buying stocks, research the companies you are interested in, examining their financial statements, performance history, market position, and any other relevant factors that may influence their future performance.
  1. Make buying and selling decisions: Once you have identified the stocks you want to buy, set the price you are willing to buy at and the order size, likewise decide when and at what price you will sell your stocks if the market hits your profit or loss targets.
  1. Monitor and adjust: After making your investments, it is important to regularly monitor their performance and be aware of news and events that may affect the market, if necessary, adjust your portfolio as your goals or financial circumstances change.

Remember that trading stocks carries risks, so it is important to only invest the money you can afford to lose and diversify your portfolio to mitigate the risk, consider looking financial advice professional if you have questions about how to start trading stocks.

Stock valuation, what is it?

Stock valuation is the process of determine the intrinsic value of a stock or a company as a wholeIn other words, it is about estimating how much a stock is worth based on various financial, economic and business factors, stock valuation is essential for investors as it helps them make informed decisions about buying, selling or holding stocks in their portfolio.


There are several methodologies and approaches to value stocks, among which are:


Valuation by multiples: This approach compares certain financial metrics of a company, such as price-to-earnings (P/E), price-to-book value (P/BV), or price-to-sales (P/S), with similar companies in the same industry. , is used to determine whether a stock is overvalued or undervalued relative to its peers.


Discounted Cash Flow (DCF) Valuation: This method estimates the present value of the future cash flows that a company is expected to generate, the future cash flows are projected, discounted at an appropriate discount rate, and added to obtain the total value of the company.


Valuation by relative valuation: This approach compares a company's value against a valuation indicator, such as its book value, earnings, or assets, relative to comparable companies in the same industry.


Valuation by assets: This method values a company based on the assets it owns, such as its properties, machinery, inventory, etc. It is primarily used when a company has valuable assets that are not adequately reflected in its market value.


Valuation by real options: This approach is based on options theory to assess the value of certain investment opportunities or projects within a company.


Each valuation method has its own advantages and limitations, and it is common for investors to use a combination of approaches to arrive at a more accurate estimate of a stock's value. It is important to note that stock valuation is both an art and a science. , and may involve a certain degree of subjectivity and risk.

Benefits of stock valuation in a company

Some of the tax benefits of a company's stock valuation may depend on the context and tax laws of the country in question, however, some possible ways in which a stock valuation can generate tax benefits are:

  • Loss deduction: If the value of the stock declines, you may be able to deduct those losses on your tax return, thereby reducing your tax liability.
  • Deferred taxes: In some cases, capital gains generated from the sale of shares may be tax deferred, meaning that you will not have to pay taxes on those gains until you sell the shares and realize the gain.
  • Preferential tax treatment: Some jurisdictions offer preferential tax treatments for certain types of stock investments, such as lower tax rates for long-term capital gains.
  • Reinvestment benefits: In some cases, reinvesting capital gains in shares of another qualified company can provide tax benefits, such as tax deferrals or tax exclusions on certain gains.

Who can do a stock valuation?

Stock valuation can be performed by a variety of professionals with experience in finance, accounting, and investment analysis. 

Some of the people or entities that commonly carry out valuations are:

  • Financial analysts: Professionals working at investment banks, brokerage firms, asset management companies, or other financial institutions, these analysts use valuation tools and methodologies to evaluate the value of stocks and provide investment recommendations to their clients.
  • Accountants and auditors: Certified public accountants (CPAs) and internal or external auditors may participate in stock valuations as part of their responsibilities in auditing a company's financial statements, as their knowledge of accounting and finance allows them to evaluate the financial health and value of assets. a company.
  • Financial consultants: Consultants and financial advisors independents can carry out valuations stocks for their clients as part of personal or corporate financial planning, these professionals help their clients understand the value of their investments and make informed decisions about their portfolios.
  • Investment analysts: Professionals working for investment funds, pension funds or other financial institutions may carry out stock valuations as part of their investment analysis process, these analysts evaluate the growth potential and intrinsic value of stocks as part of their research and investment decision making.
  • Valuation specialists: There are firms and professionals specialized in the valuation of companies and assets. These specialists have experience in various valuation methodologies and can be hired to carry out independent and objective valuations of shares.

The person or entity performing the stock valuation must have experience, solid knowledge in finance and accounting, and use appropriate and industry-recognized valuation methodologies. In addition, in some cases, it may be necessary to have specific certifications or licenses, such as the designation of Certified Financial Analyst (CFA) or the Certified Public Accountant (CPA) license.

How much are a company's shares worth?

These are some of the ways in which a company's shares can be valued:

The next measure is not as popular as the price-to-earnings ratio (PER), but it provides a more accurate view of a company's intrinsic value. The book value of a share reflects the book value of the company's assets, taking into account both its assets and liabilities, divided by the total number of shares outstanding.

  • Balance Value Adjusted to VR

Put more simply, the book value of a company involves adding the value of all its assets (such as buildings, machinery and patents) and then subtracting its debts, this result, when divided by the number of shares in circulation, gives us provides the “real” price per share, If this value is greater than the market price, it means that you are purchasing a stock whose intrinsic value is higher and on the other hand, If it is less than the market price, it indicates that something more is being paid in the purchase.

When we compare this variable with the market price, we obtain what is known as price-book value (PVL). This multiple indicates how many times the book value (equity) of the company is being paid in the market.

  • PER

The price-earnings ratio (PER), known as Price Earning Ratio in English, is a fundamental indicator in the stock market, This ratio relates the price at which a stock is traded to the profits generated by the company, It is calculated by dividing the share price by the net profit per share.

The result of this division provides a number that represents the years necessary to recover the investment taking into account the profits generated, therefore, the higher the PER, the more investors are paying for each unit of profit, and vice versa.

A P/E between 0 and 10 is generally considered low, suggesting the stock is undervalued, the standard range for most companies is between 10 and 17, while a P/E between 17 and 25 indicates the stock is slightly overvalued. , a P/E above 25 suggests the stock is overvalued.

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