Valuation of a scrip

This section intends to help investors value a company so as to assess whether they are paying the right price for a stock

In contrast to a novice investor's thinking, the price of a share does not represent the actual value of a company. It represents, at every point of time, the market's shifting perception of a company's value. This perception being invariably clouded by the market emotions of greed and fear, rarely represent the actual value of a scrip.

The most important determinant of a company's value is its earnings. It is earnings, more than any other factor, that determines the direction of a company's share price in the long run. Earnings per share (EPS) therefore becomes one of the important parameters for an investor attempting to value a company. This EPS, in relation to the price of the scrip, gives the investor an idea of the price at which a scrip is worth buying.