'Valuation is an art, not a science'. Explain this statement with reference to different methods to be applied while arriving at the fair value of shares.

Valuation is generally done on the basis of fair value when market value of a company is independent of its profitability. The fair value of shares is arrived at after consideration of different modes of valuation and diverse factors. There is no mathematically accurate formula of valuation. An element of guesswork or arbitrariness is involved in valuation. The following four factors have to be kept in mind in the valuation of shares: Capital cover Yield Earning capacity; and Marketability For arriving at the fair value of shares, three well known methods applied are: the manageable profit basis (earnings per share method) the net worth method or break-up value method the market value method. The fair value of a share is the average of the value obtained by the net assets method and the one obtained by the yield method. This is, in fact, not a valuation, but a compromise formula for bringing the prices to an agreement. Thus, the valuation of shares is more of an art than science due to the mix of qualitative and quantitative factors involved in valuation process.