In the year 2020, many companies have listed themselves under the Bangladesh stock exchange. These private business startups will soon be public on a fair offer. Before the IPO is made available, there are potential valuations made.
The companies are the final arbiters for assessing the value of the shares. The top leaders of the firm address the evaluation with stockbrokers during an IPO. The valuation method has to be practical and appropriate.
Since the company isn’t public yet, you can’t risk being dependent on the stock market. So what should be done in such a case with the shares and the investors?
Understanding the company valuation is very important before you invest in an IPO. Retail and corporate investors are affected by wrong pricing. Even though the markets are positive, many shares trade far below the issue price.
What Is Meant by The Valuation of Shares?
In simple terms, valuation refers to the offer generated by dividing the total share count by the total amount of paid-in capital.
For example- eGeneration IPO will offer 15,000,000 shares to the public for total capital of Tk 150,000,000. Hence, each share will account for Tk 10.
Valuation Method 101
Many companies raised their stocks through the bookish knowledge but experienced a downfall in the post-IPO performance. They underperform in the overall market value and the average monetary offers. This could be due to overlooking the system functioning and behavior by shareholders and appointed manager of the IPO.
To get an insight before investing in a full proof IPO, consider evaluating the Pre-IPO.
Firstly, grab a prospectus and look for the equity section in the spreadsheet. The paid-in capital determines the amount collected by the sale of the IPO. It also finds the number of shares sold by the company. The book valuation is more specific than the weak assumptions that accompany the IPO.
Also, there’s always silence on the NAV, whether based on the pre-IPO stock number or the post-IPO stock number. The value can be estimated on the previous sales, but that will no devise anything about the Pre-IPO valuation.
The company should mention the value of the shares, depending on the estimated earnings in the future. This is the most basic valuation method as the investors pay the value for future share rate and not the past stock value.
It also states that the firm should account for the shares’ valuation on the average market value of companies with the same per-share stock. In this case, the issue manager looks out for the company with a higher P/NAV and uses the estimated metric to justify the IPO’s bigger return.
The BSEC should formulate the eGeneration IPO valuation methods with developed companies and their issue managers and professional investors. The value of a share is completely estimated and can divert from the expected value by a maximum.
You can look out for the values by referring to the prospectus and closely reviewing the equity balance sheet. Proper valuation and transparency in the market functioning are more important for common investors.