You need to know if a stock is available at the proper price before investing in it: a price that represents its Intrinsic Value. Intrinsic value is defined as a value that is based on the company’s internal assets that produce value (earnings, cash flows, or the replacement cost of all its value-generating assets), rather than external factors. 

This is extremely difficult to measure precisely; only guesses can be made. There are several approaches for calculating Intrinsic Value that work in various scenarios. The most applicable approach is the Discounted Cash Flow, or simply the DCF method because we are evaluating a listed firm, i.e. an established company rather than a start-up.

What price should you pay for the entire firm if you were to acquire it?

You would total up the amount of money it would be able to offer you each year. However, you can’t just add up the cash created over time since Rs. 100 SBI share price now isn’t the same as Rs. 100 one, two, or three years later. To make the cash earned in future years compared to its worth today, or its present value, you must lower its value by a factor.

Future Selling Price

This is the price at which you will sell the shares in the future. If the stock price increases, you will profit. Now, say 5 years from now, the Future Selling Price will be determined by the EPS and its PE multiple. Future EPS is calculated by estimating the company’s earnings in the future using predictions. They keep note of whether their assumptions are valid or whether they need to be tweaked. Again, the PE multiple you may expect in, say, 5 years is an estimate. The EPS growth rate has a big impact on the logical PE multiples. You can understand it in the best manner with the IRCTC share price. 

Identifying a Rights Concern

Existing shareholders are invited to acquire extra new shares in the firm through a rights issue. Existing shareholders are given securities called rights in this sort of offering. The shareholder can use the rights to buy new shares at a discount to the market price in a future period. The corporation is offering shareholders a discounted opportunity to enhance their equity exposure.

Why Would You Make a Rights Offering?

A rights offering is the most typical way for a company to generate more money. To satisfy its present financial responsibilities, a corporation may require additional cash. When a company is in financial trouble, it frequently uses rights issues to pay off debt, especially if it is unable to borrow further money.

Conclusion 

Not all firms that undertake rights offers, however, are in financial distress. Rights issues can be used by firms with clean balance sheets. These issues might be used to generate additional cash for expenditures aimed at growing the company’s operations, such as acquisitions or the establishment of new products or sales facilities. Despite the dilution, if the firm uses the extra cash to support development, it might eventually result in larger financial gains for shareholders.