Business Valuation
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Introduction to Business Valuation, Fair Market Value, reasons and elements of business valuation, methodologies of business valuation, case study on net asset value.

Introduction to Business Valuation, Fair Market Value, reasons and elements of business valuation, methodologies of business valuation, case study on net asset value.

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Business Valuation Presentation Transcript

  • 1. 1 BUSINESS VALUATION 29/01/2014 MET’s Institute of Management
  • 2. Outline 2         Business Valuation Introduction Reasons for a Business Valuation Elements of Business Valuation Standards of Value Business Valuation Methodologies Sample Case Reports Expert’s View Conclusion MET’S Institute of Management Business Valuation
  • 3. Value 3  What is Value?  Who wants to Value?  When to Value?  How to Value? MET’S Institute of Management Business Valuation
  • 4. Business Valuation 4 “The act or process of determining the value of a business enterprise or ownership interest therein.” *International Glossary of Business Valuation. *IRS Business Valuation Guideline 2006. MET’S Institute of Management Business Valuation
  • 5. Reasons for Business Valuation 5         Sale of business or part interest Ownership Disputes Financing Buy-Sell Agreements Employee Stock Ownership Plans Estate Planning Change of Business Structure Recapitalization MET’S Institute of Management Business Valuation
  • 6. Elements of Business Valuation 6  Economic Conditions  Normalization of Financial Statements  Valuation Approach MET’S Institute of Management Business Valuation
  • 7. Standards of Value 7  Market Value (Fair Market Value)  Fair Value (FASB Definition)  Fair Value (Legal Definition) MET’S Institute of Management Business Valuation
  • 8. Fair Market Value 8 Revenue Ruling 59-60 “ The price at which the property would change hands between a willing buyer and a willing seller, neither being under compulsion to buy or sell and both having reasonable knowledge of relevant facts.” MET’S Institute of Management Business Valuation
  • 9. Fair Market Value (contd…) 9 Revenue Ruling 59-60 Factors       The nature of the business and its history since inception The economic outlook in general and outlook of the specific industry in particular The book value of the stock and the financial condition of the business The earning capacity of the company The dividend paying capacity Whether or not the enterprise has goodwill or other intangible value MET’S Institute of Management Business Valuation
  • 10. Fair Value (*FASB Definition) 10 Is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. *FASB: Financial Accounting Standards Board MET’S Institute of Management Business Valuation
  • 11. Fair Value (Legal Definition) 11 Fair Value, is often used in court cases to compensate a party for the involuntary use of an asset, such as eminent domain, where there is no reasonable assumption of a fair market value transaction. MET’S Institute of Management Business Valuation
  • 12. Business Valuation Methodologies 12 Two fundamental bases on which a company may be valued:  As a going concern, and  As if in liquidation MET’S Institute of Management Business Valuation
  • 13. Going Concern Valuation 13 Going concern value assumes that:  The company will continue in business  Enterprise’s earning power  Cash generation capabilities As indicators of its fair market value MET’S Institute of Management Business Valuation
  • 14. Going Concern Valuation (contd…) 14 GC Valuation Approaches Income Based Asset Based Market Based Value Estimate Determining a value indication of a business using one or more methods that convert anticipated economic benefits into a present single amount. Value Estimate Determing a value indication of a business based on the value of the assets net liabilities. Value Estimate Determining a value indication of a business by using one or more methods that compare the subject to similar businessess that have been sold. MET’S Institute of Management Business Valuation
  • 15. Income Based Approach 15  This approach uses the economic principle of expectation  Under this approach, one estimates the future returns of the business  Returns are then matched against the risk associated  The risk is then quantified by means of the so-called capitalization or discount rates.  The methods under the Income Approach include:  Discounted cash flow method.  Multiple MET’S Institute of Management of discretionary earnings method. Business Valuation
  • 16. Asset Based Approach 16  It considers the underlying business asset  To estimate the value of overall business enterprise  This approach relies upon the economic principle of substitution  It seeks to estimate the costs of re-creating a business of equal economic utility  BV methods under the Asset Approach include:  Asset accumulation method.  Capitalized MET’S Institute of Management excess earnings method. Business Valuation
  • 17. Market Based Approach 17  Consults the market place for indications of business value  Sales of similar businesses are studied to estimate the value of Business  This approach uses the economic principle of competition  BV methods under the Market Approach are:  Comparative private company transaction method.  Comparative publicly traded company transaction method. MET’S Institute of Management Business Valuation
  • 18. Liquidation Valuation 18 Liquidation value assumes that:  A business has greater value  If its individual assets are sold to the highest bidder and  The company ceases to be a going concern MET’S Institute of Management Business Valuation
  • 19. 19 Case Analysis MET’S Institute of Management Business Valuation
  • 20. Balance sheet of Mrs. XYZ ltd for the year ended 2013 Particulars Amount (lacs) Source of Fund Share Capital Share capital (25 pens per share) 20 Share premium Profit and loss account Current Liabilities Creditors due within one year Creditors due more than one year Total Application of Funds A) Tangible assets Freehold land and building Long leasehold property plant and equipment fixtures and fitting B) Intangible assets Programme rights Investment C) Current assets Film rights Programme stocks Debtors short term deposits cash at hand and in bank Total MET’S Institute of Management 25,862 4,093 151,237 126,042 18,001 Amount (lacs) 181,192 144,043 325,235 5,842 28,193 21,541 4,507 60,083 3,080 37,909 40,989 48,750 27,356 89,114 47,605 11,338 224,163 325,235 Business Valuation
  • 21. Net Asset Value 21 1 Freehold land and building 5,842 2 Long leasehold property 28,193 3 Plant and equipment 21,541 4 Fixtures and fitting 4,507 5 Programme rights 3,080 6 Investment 37,909 7 Film rights 48,750 8 Programme stocks 27,356 9 Debtors 89,114 10 Short term deposits 47,605 11 Cash at hand and in bank 11,338 12 Less: Creditors due more than one year (18,001) 307,234 MET’S Institute of Management Business Valuation
  • 22. 22 Net Asset Value 3,07,234 Lakhs Net Enterprise Value 3,07,234 Lakhs MET’S Institute of Management Business Valuation
  • 23. Presented by 23 Sr. No. Name R No. oll 1 ANSHARI NAWED ABDUL VAHID 61 2 ATTRA GURUDEV RAVINDERSINGH 62 3 COUTINHO JOHN PETER 63 4 JAIN ASHISH GANPATHLAL 74 5 KHAN DANISH WAHID 80 6 RAO SWETA SUNDER 105 MET’S Institute of Management Business Valuation