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Valuation of shares under earning yield method.

25 June 2017

Please refer Illustration . 4 of Study Material of Financial Reporting, December, 2016 Edition (Module-3, Page No. 9.61) of Final Exam.

In valuation of shares as per EPS yield, Profit before tax for the year 2017 has been taken. But,, in Page No. 9.53, it is clearly stated that Future Maintainable profit should be taken in Yield based valuation. Can we solve the problem with FMP instead of PBT of a single year?

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Karan Batra (Creator: TheProTalks) (2325 Points)
Replied 27 June 2017

Please refer to the requirement of the question brother, In the question it is clearly mentioned EPS is basis, still I need to clarify few things here.

Valuation is not exact science and the basic rules are to be followed rest all differs from valuer to valuer, one may take FMP here but the objective here is to clear the examinations so be exam oriented.
In yield basis yes one needs to take FMP or should I say Adjusted FMP after tax for calculation of earning rate but if specifically, EPS is mentioned just take the actual EPS that is actual profits and not future adjusted profits.