Question

Why does the estimated value per share of a firm is much less than the stock price per share for the end of the fiscal year end?

Answer 1

Estimated stock price : also known as the intrinsic value of share, which is the actual value of share calculated on the basis of the actual outside liabilities subtracted form its assets. Intrinsic value is totally based on the internal factors of an organisation. All the external factors are eliminated. It reduces the subjective prospective of shares. Estimated value is also defined as present value of all future net cash flows.
Stock price of share : It is the maximum price of a share which someone is willing to pay for purchasing the stock of a company. Share prices are set by the supply and demand of shares and other market factors but there are also many techniques based on which stock price are defined.

There is always a difference between the estimated share price and stock price of a share due to the following factors :

• Estimated price is "actual price" whereas stock price is "fair price".
• Estimated price is calculated based on current situation of the organisation but stock price is based on supply and demand of shares in Share Market.
• Estimated price is defined by internal factors of an organisation but stock price ignores internal factors and focuses on only external factors.