FACTORS TO CONSIDER IN THE SELECTION OF STOCK VALUATION:

• Tradition-Certain trade or industry has its own particular method of valuing stock

• Taxation-As mentioned, stock valuation has a direct impact on profitability. Hence, some enterprise might choose the method that can produce the lowest profitability to enjoy lower tax payable.

• Convenience- it is always important to consider the pros and cons of costs over benefit. Weigh the cost of processing information versus costs of obtaining it.

• Audit recommendation-Quite a number of enterprises adopted a certain stock valuation basis mainly because of the recommendation from their auditors.

• To strength the financial position of the balance sheet. The following impact can results from a higher stock valuation:

          – effectively increase the current ratio (current assets/current liabilities) to show a higher liquidity ratio;

          – enable a higher capacity to borrow from lenders;

          – to increase the future selling price of the business if the owner choose to sell off

• Manipulation by senior management- by increasing stock valuation, they are able to achieve their goals set by the shareholders to remunerate them.

• More simply, there might be an element of enterprise lacking the proper information or ignorance of the various types of stock valuation methodologies.