What is the basis for fixing IPO and sahre value ?

Question

What is the basis for fixing IPO and sahre value ?

Answer 1

i guess joel has tried to explain share value and regarding IPO it depends from organisations to organisations. IPO's of subsidiary companies are normally priced high if the parent company is highly economically sound and priced low otherwise. for new organisations they are priced low so as to attract more investors.

Answer 2

A lot of things. Obvious things include revenue, assets, and so on. Probably the most important is EBITDA.

EBITDA stands for earnings before interest, taxes, depreciation, and amortization. It essentially allows you to see through a company's accounting practices.

For example, a company may be making a lot of money but may not look profitable because most of that money is going to pay back loans.

Share value is basically total value divided by the number of shares. Total value is EBITDA over time. $10 today is worth more than $10 tomorrow. So you have to predict the money the company will make over time, and correct that for the lower value of future dollars.

Of course, the hard part is predicting what the company's future EBITDA will be. One key way is to look at their past EBITDA over the last few years. Often, the future is a lot like the past. A company that has been growing is likely to continue to grow.

Other things to factor in are likely future changes. For example, if a company has a patent that's about to expire, you may need to subtract from predicted future earnings those due to the patent. If it has a patent that's likely to issue, you may need to add.

To some extent, it's a black art. For example, to calculate that value of future income, you need to know what inflation is going to be in the future. Nobody knows that for sure.

Basically, a share is worth what someone will pay for it.