# What is fair value of an equity share?

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## What is an equity fair value?

In investing, fair value is a reference to the asset’s price, as determined by a willing seller and buyer, and often established in the marketplace. … In accounting, fair value is a reference to the estimated worth of a company’s assets and liabilities that are listed on a company’s financial statement.

## How is fair value of equity shares calculated?

It is calculated by multiplying a company’s share price by its number of shares outstanding. The number of weighted average shares outstanding is used in calculating metrics such as Earnings per Share (EPS) on a company’s financial statements.

## Is fair value the same as equity value?

Fair market value is defined as an asset’s sale price if a transaction occurred between a willing buyer and seller. The equity method considers the asset’s original purchase price and the investor’s stake in the asset.

## How is fair value calculated?

DCF is the most widely accepted method to calculate the fair value of a company. … It is based on the premise that the fair value of a company is the total value of its future free cash flows (FCF) discounted back to today’s prices.

## Why is fair value important?

Fair value is an important metric for setting prices of assets because it allows for a more accurate assessment of the worth, even when there are no recent sales to reference. There are many different methods of determining an asset’s fair value to allow for estimations in a variety of situations.

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## What is the difference between fair value and present value?

The fair value of OTC derivatives (“present value” or “theoretical price”) is equal to the sum of future cash flows arising from the instrument, discounted at the measurement date; these derivatives are valued using methods recognized by international financial markets: the “net present value” (NPV) method, option …

## How do you calculate a company’s share price?

A common method used is the estimate of a business’s value by dividing its expected earnings by a capitalization rate.

ii. Income-based

1. Obtain the company’s profit (available for dividend)
2. Obtain the capitalized value data.
3. Calculate the share value ( Capitalized value/ Number of shares)