The first point is that the level of benefit should represent a shareholder’s share in the business. Calculating that share of the business can be difficult so it is best to ask an accountant to value the business and to review this valuation on a regular basis.

The two main valuation models are the Price Earnings Ratio and the Net Asset Value

Shareholder Protection - The Price Earnings Ratio

A Price Earnings Ratio is the share price divided by the earnings per share. Put simply, the Price Earnings Ratio method focuses on the company’s anticipated future profitability and the perceived present day value of these profits. The higher the ratio, the
greater the profits are expected to be relative to the current profits.

Shareholder Protection - Net Asset Value method

This method values the company as if it were being broken up. The valuation takes into account buildings, stock, debts etc but does not take into account goodwill, specialist workforce etc.

It is common practice to use both methods when valuing a company for Shareholder Protection purposes.