Valuation Concepts and Methods Valuation Concepts and Methods.pptx

VALUATION AND CONCEPTS METHOS PPT

1. VALUATION CONCEPTS AND METHODS THE CONCEPT OF VALUE

2. VALUE

3. Why Value? Value is sought to be known to determine the "worth" of a possession (asset, company, etc.)

4. Who requires valuation? The following entities may require the valuation 1.Buyer and/or Seller 2. Lender 3. Intermediary  like an agent  or a broker 4. Government 5. General Public - Investor

5. When to value? Valuation is done for, but not limited to, the following 1. Financing transactions 2. Tax Planning 3. Corporate Development 4. Mergers and acquisitions 5. Bankruptcy

6. Different Types of Value

7. Different Types of Value

8. Different Types of Value Going Concern Value – the value of an asset to the enterprise as a going concern or the value of an asset 'in use". Most business valuations will be prepared on the basis of a going concern. Liquidation  Value –the net value of a company's physical assets if it were to go out of business and the assets sold           -the price of a company's tangible assets if it goes out of business and need to be liquidated within limited period of time. Liquidation value is typically lower than the fair market value as it is allowed insufficient exposure to the investors in the open market. Intangible assets, including the intellectual properties, reputations and goodwill  are not included in liquidation value. If the company were to be sold rather than liquidated, then the price is called going-concern value which includes the liquidation value and the present value of its intangible assets.

9. Different Types of Value Investment Value – the value of a company or an asset to a particular investor, using the investor's specific judgments and assumptions. It can be much higher than the fair market value to an investor who has the ability to put the assets to use in its maximum productive way, and it can also be lower than the fair market value to an investor who has limited ability to make the best use of the property. Breakup Value – the market value of a business if its business units were to be sold and operated independently. The breakup value of a corporation is the worth of each of its main business segments if they were spun off from the parent company.

10. Valuation the process and set of procedures used to determine the economic value of an owner’s interest in a business the analytical process of determining the current (or projected) worth of an asset or a company

11. Valuation Approach Three different approaches are commonly used in business valuation. 1. Discounted Cash Flow Valuation/Income Approach – the value is determined by calculating the net present value of the stream benefits generated by the business or the asset. Thus, the DCF approach equals the enterprise value to all future cash flows discounted to the present using the appropriate cost of capital.

12. Valuation Approach 2. Relative Valuation/Market Approach – in this approach, value is determined by comparing the subject company or asset with other companies or assets in the same industry, of the same size, and/or within the same region, based on common variables such as earnings, sales, cash flows, etc.

13. Valuation Approach 3. Asset-based Approach – the difference between the assets and liabilities taken from the balance sheet, adjusted for certain accounting principles. Two methods are used: a. The Liquidation Value – the sum of estimated sale values of the assets owned by a company. b. Replacement Cost – the current cost of replacing all the assets of a company

14. Valuation Approach The asset-based approach, however, is not an alternative to the first two approaches, as this approach itself uses one of the two approaches to determine the values. This approach is commonly used by property investment companies, to cross check for asset-based trading companies such as hotel and property developers. Sometimes doing all these and then weighing each is appropriate to calculate intrinsic value. Meanwhile, some methods are more appropriate for certain industries. For example, you wouldn’t use an asset-based valuation approach to valuing a consulting company that has few assets instead, an earnings-based approach like DCF woud be more appropriate,