Shares are valued as they represent ownership in a company and provide a way for investors to participate in the growth and profits of a company. The value of a share is determined by various factors such as the company’s financial performance, market demand and supply, and overall economic conditions.

Methods of valuation of shares:

1. Fundamental analysis - This method involves analyzing a company’s financial statements, management, industry, and competitive position to determine the intrinsic value of a share. Factors such as earnings growth, dividends, and cash flow are considered in this method.

2. Technical analysis - This method involves analyzing historical price and volume data of a stock to predict future price movements. Technical analysts use charts, trends, and patterns to identify buying and selling opportunities.

3. Discounted cash flow (DCF) analysis - This method involves estimating the present value of a company’s future cash flows. Future cash flows are discounted back to their present value using a discount rate, which reflects the risk associated with the investment.

4. Price-to-earnings (P/E) ratio - This method involves dividing a company’s current share price by its earnings per share (EPS). This ratio is used to compare the current market price of a share to the company’s earnings.

5. Price-to-book (P/B) ratio - This method involves dividing a company’s current share price by its book value per share. This ratio is used to compare the current market price of a share to the company’s net assets.

6. Dividend discount model (DDM) - This method involves estimating the present value of a company’s future dividends. Future dividends are discounted back to their present value using a discount rate.

Conclusion:

The method of valuation of shares depends on the investor’s objective, investment horizon, and risk appetite. A thorough analysis of a company’s financial statements, management, industry, and competitive position is necessary to determine the intrinsic value of a share. Investors should also consider overall economic conditions, market demand and supply, and other macroeconomic factors before investing in shares.