Unit ko samjho · NISM Series XV
Valuation Principles
13 questions is unit mein
Sawaal aur jawaab English mein hain, kyunki NISM ka exam paper bhi English mein hota hai.
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- A listed company trades at ₹675 per share and reports trailing twelve-month earnings per share (EPS) of ₹45. Which combination is correct?
- During the year, Alpha Ltd. earned profit after tax attributable to ordinary shareholders of ₹96 crore. Its average ordinary shareholders' equity was ₹640 crore. What is its ROE?
- Beta Industries has a market capitalisation of ₹2,500 crore, interest-bearing debt of ₹700 crore and cash and cash equivalents of ₹300 crore. Assume there is no preferred capital or non-controlling interest. What is its enterprise value?
- A mature company is expected to pay a dividend of ₹9 per share one year from now. Dividends are assumed to grow perpetually at 5% a year, and the required return on equity is 11%. Under the constant-growth dividend discount model, what is the estimated value per share?
- An analyst wants a balance-sheet-based relative valuation measure. In which case is P/B generally the most directly interpretable, assuming accounting quality is satisfactory?
- Which statement best captures the distinction between market price and intrinsic value?
- A company trades at a P/E of 24 times and its sustainable earnings growth rate is assumed to be 12% per year. Using the conventional PEG calculation with growth entered as 12 rather than 0.12, the PEG ratio is:
- A listed group owns a mature consumer business, a regulated utility and a fast-growing digital subsidiary with very different economics. Which valuation approach may be especially useful?
- A company has enterprise value of ₹2,400 crore and annual revenue of ₹1,200 crore. Its EV/Sales multiple is:
- When comparing transaction multiples with ordinary trading multiples, which consideration is most important?
- For which business is a net asset value (NAV) approach likely to be especially relevant?
- In a constant-growth terminal-value calculation, the discount rate is held at 11% and the perpetual growth assumption is increased from 4% to 5%, with all other inputs unchanged. What is the direct effect on terminal value?
- A digital platform reports rapid growth in gross merchandise value (GMV) but still loses money on each incremental transaction before corporate overhead. Which additional metric is most important before treating GMV growth as evidence of value creation?
Zaroori ideas
Practice bank se · 1
A listed company trades at ₹675 per share and reports trailing twelve-month earnings per share (EPS) of ₹45. Which combination is correct?
P/E = Market Price ÷ EPS = 675 ÷ 45 = 15.0 times. Earnings yield = EPS ÷ Market Price = 45 ÷ 675 = 6.67%. The two measures express the same price-earnings relationship in different forms. Remember: P/E is a multiple. Earnings yield is the reciprocal percentage expression of that relationship.
Hint Common mistake: Confusing a valuation multiple with a percentage yield.
XV-001Practice bank se · 2
During the year, Alpha Ltd. earned profit after tax attributable to ordinary shareholders of ₹96 crore. Its average ordinary shareholders' equity was ₹640 crore. What is its ROE?
ROE = Profit attributable to ordinary shareholders ÷ Average ordinary shareholders' equity × 100 = 96 ÷ 640 × 100 = 15%. Remember: Use profit attributable to equity holders with the corresponding equity base.
Hint Common mistake: Using revenue, total assets, or closing equity without considering the stated denominator.
XV-002Practice bank se · 3
Beta Industries has a market capitalisation of ₹2,500 crore, interest-bearing debt of ₹700 crore and cash and cash equivalents of ₹300 crore. Assume there is no preferred capital or non-controlling interest. What is its enterprise value?
Enterprise value = Market capitalisation + Debt − Cash = 2,500 + 700 − 300 = ₹2,900 crore. Remember: Enterprise value adjusts equity value for financing claims and surplus cash.
Hint Common mistake: Adding cash instead of subtracting it.
XV-003Practice bank se · 4
A mature company is expected to pay a dividend of ₹9 per share one year from now. Dividends are assumed to grow perpetually at 5% a year, and the required return on equity is 11%. Under the constant-growth dividend discount model, what is the estimated value per share?
Under the Gordon growth model, value = D1 ÷ (k − g) = 9 ÷ (0.11 − 0.05) = 9 ÷ 0.06 = ₹150. Remember: In a constant-growth DDM, use next year's dividend and ensure the required return exceeds the perpetual growth rate.
Hint Common mistake: Using the current dividend instead of D1, or adding k and g instead of subtracting g from k.
XV-004Practice bank se · 5
An analyst wants a balance-sheet-based relative valuation measure. In which case is P/B generally the most directly interpretable, assuming accounting quality is satisfactory?
P/B is generally more informative where book equity is economically meaningful and assets and liabilities are substantially recognised on the balance sheet. That is often more true for a regulated bank than for businesses whose value is dominated by internally generated intangible assets. Remember: A valuation multiple is useful only when its denominator is economically meaningful for the business being valued.
Hint Common mistake: Treating a low P/B ratio as automatically cheap without examining business model and accounting quality.
XV-005Practice bank se · 6
Which statement best captures the distinction between market price and intrinsic value?
Market price is observable in transactions. Intrinsic value is an estimate derived from expected cash flows, assets, growth, risk and other assumptions. Different analysts can reasonably estimate different values because their assumptions may differ. Remember: Price is observed. Value is estimated and assumption-dependent.
Hint Common mistake: Treating valuation as an objective single number that must equal the market price.
XV-085Practice bank se · 7
A company trades at a P/E of 24 times and its sustainable earnings growth rate is assumed to be 12% per year. Using the conventional PEG calculation with growth entered as 12 rather than 0.12, the PEG ratio is:
PEG = P/E ÷ Earnings growth rate = 24 ÷ 12 = 2.0 under the stated convention. The PEG ratio is a shorthand comparative metric and does not remove the need to assess growth quality, risk and sustainability. Remember: PEG scales P/E by an assumed earnings-growth rate. The growth assumption is often the weakest input.
Hint Common mistake: Mixing decimal and whole-percentage conventions in the growth denominator.
XV-086Practice bank se · 8
A listed group owns a mature consumer business, a regulated utility and a fast-growing digital subsidiary with very different economics. Which valuation approach may be especially useful?
Sum-of-the-parts valuation separately values materially different businesses using methods or multiples suitable to each segment, then combines them and adjusts for relevant corporate assets, liabilities and other group-level items. Remember: SOTP is useful when consolidated figures hide businesses that deserve different valuation frameworks.
Hint Common mistake: Adding segment values without accounting for corporate debt, cash or other group-level adjustments.
XV-087Practice bank se · 9
A company has enterprise value of ₹2,400 crore and annual revenue of ₹1,200 crore. Its EV/Sales multiple is:
EV/Sales = Enterprise value ÷ Revenue = 2,400 ÷ 1,200 = 2.0 times. Remember: Match an enterprise-value numerator with the corresponding operating metric in the denominator.
Hint Common mistake: Using market capitalisation instead of enterprise value without noticing the multiple definition.
XV-119Practice bank se · 10
When comparing transaction multiples with ordinary trading multiples, which consideration is most important?
Acquisition prices can include a premium for control and expectations of synergies or strategic value. Therefore transaction multiples may not be directly comparable with unaffected public-market trading multiples. Remember: Always understand what economic rights and deal effects are embedded in a valuation multiple.
Hint Common mistake: Using transaction and trading multiples interchangeably without adjusting for control and deal context.
XV-120Practice bank se · 11
For which business is a net asset value (NAV) approach likely to be especially relevant?
NAV is especially relevant when underlying assets can be identified and valued with reasonable reliability, such as in an investment holding company, property company or certain asset-heavy businesses. Remember: Choose a valuation approach that fits the economic source of value in the business.
Hint Common mistake: Applying asset-based valuation mechanically to businesses dominated by internally generated intangibles.
XV-121Practice bank se · 12
In a constant-growth terminal-value calculation, the discount rate is held at 11% and the perpetual growth assumption is increased from 4% to 5%, with all other inputs unchanged. What is the direct effect on terminal value?
In a Gordon-style terminal value, TV = FCF₁ ÷ (r − g). Raising g while holding r constant reduces the denominator and therefore increases terminal value, provided r remains greater than g. Remember: DCF terminal values can be highly sensitive to small changes in discount and perpetual-growth assumptions.
Hint Common mistake: Changing a terminal assumption without checking how it affects the denominator r−g.
XV-122Practice bank se · 13
A digital platform reports rapid growth in gross merchandise value (GMV) but still loses money on each incremental transaction before corporate overhead. Which additional metric is most important before treating GMV growth as evidence of value creation?
High activity growth does not automatically create value. Analysts should examine whether incremental transactions contribute positively after variable costs and how acquisition, retention and monetisation economics evolve. Remember: For new-age businesses, operating activity metrics must be connected to sustainable unit economics and cash generation.
Hint Common mistake: Equating user, volume or GMV growth with value creation without testing economics.
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