Guide to Value Business - for investment, merger & acquisitions. Business & Finance

1. BUSINESS Valuation
• Corporate Valuation
• Concepts & Applications
• Checkpoints
Valuations

2. BUSINESS Valuation
ANSWER to VALUATION technique VALUATION checkpoints DIMINISHING returns

3. BUSINESS Valuation
ANSWER to VALUATION technique DIMINISHING returns
• Why to carry out valuation?
• Is high valuations despite losses possible?
• What should be the discount rate?
• Law of Diminishing Returns
VALUATION checkpoints

4. BUSINESS Valuation
ANSWER to VALUATION technique DIMINISHING returns
Income Approach
Market Approach
Net Asset Approach
VALUATION checkpoints

5. ANSWER to VALUATION technique DIMINISHING returns
Income Approach
Market Approach
Net Asset Approach
BUSINESS Valuation
• Estimates of value asset on Present Value of expected cash flows
• Techniques:
- Capitalization of Earnings
- Discounted Cash Flow Analysis
- Dividend Discount Model
VALUATION checkpoints

6. ANSWER to VALUATION technique DIMINISHING returns
Income Approach
Market Approach
Net Asset Approach
• Capitalization of Earnings
- Single period Discount Cash Flow Analysis
- Apt for Stable Growth Companies
- Caution : Discount Rate
• Discounted Cash Flow Analysis
- Asset period Discount Cash Flow Analysis
- WACC
- Cost of Equity – CAPM | Build up
• Dividend Discount Model
- Single period Dividend
- Caution : Growth rate in Dividend
BUSINESS Valuation
VALUATION checkpoints

7. ANSWER to VALUATION technique DIMINISHING returns
Income Approach
Market Approach
Net Asset Approach
• Comparable fair market value in an arm’s length transaction
• Techniques:
- Publically-Traded Comparable Company Analysis
- Market Transaction Approach
BUSINESS Valuation
VALUATION checkpoints

8. ANSWER to VALUATION technique DIMINISHING returns
Income Approach
Market Approach
Net Asset Approach
• Publically-Traded Comparable Company Analysis
- Valuation ratios of Comparable company
- Valuation as a function of measure of financial performance
- Dependent upon efficient market theory
• Market Transaction Approach
- Valuation basis price quoted on stock exchange
- Average quoted price indicative of value perception
- Dependent upon free market conditions
BUSINESS Valuation
VALUATION checkpoints

9. ANSWER to VALUATION technique DIMINISHING returns
Income Approach
Market Approach
Cost Approach
• Estimates value based on the replacement cost of an asset of
equivalent utility and depreciation including obsolescence
• Value of asset based business is equal to sum of its parts
BUSINESS Valuation
VALUATION checkpoints

10. BUSINESS Valuation
ANSWER to VALUATION technique DIMINISHING returns
VALUATION checkpoints
• New Property/Equipment less salvage value
• Incidental start up expense after tax
• Change in working capital
• Change in Revenue/ cost & expense
• Extraordinary, non-recurring and unusual items
• Non Cash expenditures
• Adjustment for Amortization
Inclusion Exclusion

11. ANSWER to VALUATION technique DIMINISHING returns
VALUATION checkpoints
• Impact of seasonal events
• Corporate Governance & Transparency
• Discount & Premiums
• Operational Environment – Legal & Tax
• Consistency in Accounting Practices
Caution
BUSINESS Valuation

12. BUSINESS Valuation
ANSWER to VALUATION technique VALUATION checklist DIMINISHING returns
Start-up
Growing
Matured
Declining
Parameters Start-up Growing Matured Declining
Turnover/Profit Negligible Increasing Saturated Dropping
Valuation Business model Business Model Existing Asset Existing Asset
Cost of Capital Very high High Reasonable Not available

13. BUSINESS Valuation Thank You...

14. BUSINESS Valuation
• Corporate Valuation
• Concepts & Applications
• Acquisition
Valuations