It’s one of the most important questions when investing in shares: How much are they worth? Overpaying for shares is a key risk for long-term investors. What you pay can play a big part in what you get back in investment returns. Pay too much and you can end up with a very poor investment. Buying a share for less than it is worth can deliver handsome gains. Valuing shares is far from an exact science, but armed with some knowledge it is possible to make better and more profitable investment decisions.
I see a lot of things to do with investment as essentially being about the relationship between what is put in – investment or money – and what comes back as a result of it – profits. Value is no different. For me, you are looking to work out what something is worth relative to what you pay for it. So how do you work out the value of a share?