The document discusses the valuation framework for cost approaches by CMAs, emphasizing their established role in asset-based valuations under GST regulations. It explores various valuation approaches and highlights the CMA's strength in the asset-based approach, asserting that CMAs can lead in financial valuation by redefining their framework. Additionally, it notes the peculiarities of valuing Indian digital retail and e-commerce companies using metrics like Gross Merchandise Value (GMV), which may not accurately reflect true revenues.

1. Redefining Valuation Framework
Cost Approach
By
CMA Dr.V.V.L.N. Sastry
Premier Investment Banking……...
Equity Research
House………...

4. Valuation is the process of determining the economic
worth of an asset or company under certain
assumptions and limiting conditions and subject to
the data available on the valuation date
Ref: International Valuation Standard Council
What is Valuation?

5. Are CMAs new to Valuation?
The answer is No
Why?
1) CMAs have been constantly doing valuations under CAS 4 for
Goods manufactured that are not sold, but captively consumed
2) Goods partly captively consumed and partly sold
3) Goods sold to related party but captively consumed
4) Free Samples
5) Intermediate Goods
What has changed?
The regime to GST

6. Are CMAs new to Valuation?
CAS 4 under GST
1. CAS-4 to determine the cost of production or acquisition of goods or cost of
provision of services, consequent to the change over to the GST regime.
2. Para 5.23 of the said draft clearly stipulates that the cost of production /
acquisition / provision shall include cost of inputs received FOC or at
concessional value, net of input tax credit, from the recipient of goods or
services, as well as the amortization cost of FOC tools, patterns, dies, etc.
necessary for the production / acquisition / provision.
3. The format specified for the statement to be prepared for arriving at the cost of
production / acquisition /provision of the taxable goods / supplies also clearly
require the cost of FOC inputs to be included in the cost computations.
Source: ICAI-CMA exposure draft for revision

7. Where are CMAs in the new regime of
Financial Valuation?

8. Wherever financial valuation is required –
There CMA with Valuation credential

9. Wherever financial valuation is
required, there CMA

10. 1. What is the core strength of CMAs?
2. Where do we figure in the valuation approaches
with our core strengths?
3. To know that let us first see the approaches!

11. Valuation Approaches

12. Fundamental Approach

13. Relative Approach

14. Other Approaches

15. Having seen the various approaches,
let us admit that we are strong in
Asset Based Approach which is also known as
Cost Approach

16. Balance sheet approach:
Cash and working capital (book value close to its
realizable value)
Property, Equipment, and Land (appraisal value)
Intangibles.
Book value of equity vs market value of equity
Asset-Based Methods

17. 1) It is a generally accepted business valuation approach.
2) It’s just not limited to property valuation
3) Cost approach is a generally accepted approach to value
individual tangible assets and intangible assets.
4) The asset based approach is based on the following
relationship:
The value of the total company assets (both tangible and intangible)
Minus
The value of the total company liabilities (both recorded and contingent)
Equals
The value of the total company equity
Why CMAs are strong in Asset Based
Approach (Valuation)?

18. If we redefine the valuation framework by
co-relating with cost approach (asset based approach)
we the CMAs will be the leaders in financial valuation.
Let us propagate cost approach (asset based approach),
and let us develop unique standards
And
Let our CMA flag fly high.
CMAs will be the leaders in Valuation
Profession

19. Let us use cost approach in
regulatory-Industry driven valuations

20. Let us use cost approach in other
financial valuation methodologies

21. Let us use cost approach in trend
setting start-up valuations
Indian digital retail and e-Commerce companies and their valuations
are being closely linked to the soaring valuation of US tech
start-ups and investors are under the fear of missing out.
The online retail companies were relying on a different metric of
valuations:
"GMV" gross merchandise value which is defined to indicate total
sales value for merchandise sold through a marketplace over a
period.
However, it must be noted that GMV is not reflected on their
financial statements and their actual revenues are just a fraction of
GMV. The GMV or sales (as per financial statement) was then
multiplied by a multiple (x times) to get the Valuation of the entity.

22. THANK YOU