ASSIGNMENT SUBMISSION

For

PAPER NO. & SUBJECT NAME: IL BBA 109 - Cost Accounting

TOPIC: A Note On Stock Valuation and How It Can Create Difference

Between Cost And Financial Accounts.

SEMESTER: 02

ROLL NO.: 50

ACADEMIC YEAR: 2022-23

Submitted To,
APURVA AGARWAL SIR
DHAVAL GUPTA SIR

LJ SCHOOL OF LAW

Signature Of Student: ________________

Signature Of Faculty: ________________

STOCK VALUATION:

● Stock valuation is the process of determining the fair value or intrinsic

value of a stock.
● It is the process of valuing companies and comparing the valuation to the
current market price to see whether a stock is over- or undervalued.
● The goal is to estimate the future cash flows that the stock will generate
and discount them back to present value.
● The accuracy of stock valuation methods can vary depending on the
quality of data and assumptions used.
● It's important to remember that stock valuation is an estimate and not a
guarantee of future stock performance.

The three main methods for stock valuation are:

1. Discounted Cash Flow Model (DCF):

● The dividend discount model is one of the most basic techniques of

absolute stock valuation.
● It is used to estimate future cash flows based on financial projections and
discounts them to present value using a discount rate.
● The dividend discount model is applicable only if a company distributes
dividends regularly and the distribution is predictable.

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 2. Discounted Cash Flow Model (DCF):

● The discounted cash flow model is another popular method of absolute

stock valuation.
● Under the DCF approach, the intrinsic value of a stock is calculated by
discounting the company’s free cash flows to its present value.
● The main advantage of the DCF model is that it does not require any
assumptions regarding the distribution of dividends.

3. Comparable Companies Analysis (CCA):

● It is a method used to evaluate the potential value of a company by

comparing it to similar companies (the "comparables").
● This analysis is used by investors and financial analysts to estimate the
value of a company based on market trends and financial performance.
● The goal of a CCA is to gain insight into a company's financial
performance relative to its peers and make informed investment decisions
based on this information.

Stock valuation can create differences between cost and financial accounts
due to differences in accounting principles, methods and estimates.

1. Cost Accounting: Aims to measure the cost of producing goods or

services and is used for internal decision making and cost control. Cost
accounting may use historical cost or replacement cost methods, which
may not reflect current market value.

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2. Financial Accounting: Aims to provide information to external
stakeholders, such as investors, creditors and regulators. Financial
accounts must comply with generally accepted accounting principles
(GAAP) and may use fair value accounting, which is based on current
market values.

● Thus, when it comes to stock valuation, cost accounting and financial

accounting may produce different results. This can result in differences
between the book value (as reported in cost accounts) and market value
(as reported in financial accounts) of a company's stock.