What are the methods of stock valuation?

Investments
Many companies obtain investments in the form of shares or debentures to earn revenue or to utilize cash surpluses profitably. The normal investments a company has are:

1.Trade: Trade investments are shares or debentures of competitors that a company holds to have access to information on their growth, profitability and other details which may not, otherwise, be easily available.

2.Subsidiary and Associate Companies: These are shares held in subsidiary or associate companies. The large business houses hold a controlling interest in several companies through cross-holdings in subsidiary and associate companies.

3.Others: Companies also often hold shares or debentures of other companies for investment or to park surplus funds. The windfall profits made by many companies in the year to 31 March 2003 was on account of the large profits made by trading in shares.

Investments are also ranked as quoted and unquoted investments. Quoted properties are shares and debentures that are quoted in a recognized stock exchange and can be easily traded. Unquoted investments are not listed or quoted on a stock exchange. Consequently, they are not very liquid and are difficult to dispose of.
Investments are valued and stated in the balance sheet at either the acquisition cost or market value, whichever is lower, to be conservative and to ensure that losses are adequately accounted for.
Stock or Inventories

This area unit arguably the foremost vital current assets that an organization has because it is by the sale of its stocks that an organization makes its profits. Stocks, in turn, consist of:

1.Raw Materials: The primary purchase which is utilized to manufacture the products a company makes.
2.Work in Progress: Goods that are in the process of manufacture but are yet to be completed.
3.Finished Goods: The finished products manufactured by the company that is ready for sale.

Valuation of Stocks
Stocks are valued at the lower of cost or net realizable result. This is to confirm that there'll be no loss at the time of sale as that will are accounted for.
The common methods of valuing stocks are:

1.FIFO or First in First Out: It is assumed under this method that stocks that come in first would be sold first and those that come in last would be sold last.
2.LIFO or Last in Last Out: The premise on which this method is based is the opposite of FIFO. It is assumed that the stocks that arrive last will be sold first. The reasoning is that customers like newer materials or merchandise.

It is important to ascertain the method of valuation and the accounting principles involved as stock values can easily be manipulated by changing the method of valuation.

Trade Debtors
Most companies do not sell their products for cash but on credit and purchasers are expected to pay for the goods they have bought within an agreed period of time, 30 days or 60 days. The period of loan would vary from customer to customer and from company to company and depends on the creditworthiness of the customer, market conditions and competition.
Often buyers may not pay within the agreed credit period. This may flow from neglect in credit administration or the lack of shoppers to pay. Consequently, debts are classified as:

1.those over six months and others.
These are further subdivided into :
2.debts thought of sensible and debts thought of dangerous and uncertain.