In calculating fair value, element of guesswork or arbitrariness is imminent. Comment.

Valuation can be done on the basis of fair value. However, resort to valuation by fair value is appropriate 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. Capital cover, Yield, Earning capacity, and Marketability are to be calculated or verified to arrive at fair valuation of the shares in question. While valuing shares, the valuer is required to take into consideration any special features, such as, quantum of shares to be acquired as a percentage of total shares, in other words extent of dominance, transferability restrictions, dividend pay-outs, bonus and rights issue made earlier that influences the share value. Over all, funds flow and cash flow analysis is also to be studied for valuation of shares. It is also necessary to follow valuation standards so that uniformity in valuation of various tangible and intangible factors are taken into account.