Valuing shareholdings

The Basis of a Valuation

There are essentially two different ways to value a company (and therefore a shareholding in that company).

A valuation based on a "net asset" basis will focus on the value of the assets owned by the company which might well be, for example, property or plant and machinery.

In contrast, an "earnings" based valuation would concentrate on the income and earnings generated by a particular company both historically and the potential to earn income in the future.

It is normally a matter for the valuer to decide which of these bases is the most appropriate in any given circumstances.

Certain companies may well strongly favour a net asset based valuation (such as property investment companies) and other companies will more obviously lean towards an earning based valuation (for example, an internet based retailer with little or no assets).