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Valuations Simplified in Your Language
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In-depth analyses of valuation methodologies
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Key valuation terms
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A
- Acquisition Premium
It is the difference between the purchase price and pre-acquisition value of the target firm in a merger or acquisition.
- Active Market
It is a market in which transactions for the asset or liability take place frequently and in sufficient volume to provide pricing information on an ongoing basis.
- All Risks Yield
It is the reciprocal of the Capitalization Factor, typically expressed as a percentage.
- Appraised Value
It is the Valuation Professional’s opinion or conclusion of value
- Arbitrage Pricing Theory
It is a model for estimating the cost of equity capital, which incorporates several systematic risk factors.
- Attrition
It is the annual rate of loss, expressed as a percentage, of an existing asset such as a customer relationship, workforce or technology-related asset. The attrition rate may be used in projecting the expected future cash flows of a similar asset.
B
- Backsolve Method
It is a Market Approach based method wherein the equity value for a privately held company is derived from a recent transaction between unrelated parties in the company’s own instruments.
- Basis of Value
It is a statement of the fundamental measurement assumptions of a valuation. The basis of value is also the standard or definition of value being used (e.g. Fair Market Value, Market
- Beta
It is a measure of systematic risk of a security; the total return of a security correlated to the return of a specific portfolio of assets.
- Business Combination
It refers to a transaction or other event in which an acquirer obtains control of one or more businesses.
C
- Calibration
It is the process of reconciling the unobservable inputs utilized in a valuation technique so that the output of that valuation technique equals a specified value.
- Carrying Amount
It is the amount at which an asset is recognized in the financial statements of an entity after excluding any accumulated depreciation and any accumulated impairment losses.
- Common Size Statements
It refers to the financial statements in which each line is expressed as a percentage of the total. Each line item is shown as a percentage of total assets in case of balance sheet, and on the income statement, each item is expressed as a percentage of revenues.
- Contributory Asset Charge
It is a charge deducted from the cash flows allocated to the intangible asset being valued to reflect a fair return on Contributory Assets required for the generation of the cash flows associated with the intangible asset being valued.
- Contributory Assets
This refers to any tangible or Intangible Assets required for the generation of the cash flows indulged with the subject intangible asset being valued using methods such as the Multi Period Excess Earnings Method.
- Cost Savings Method
This method is a form of the income approach that directly measures an expected future benefit stream of an asset in terms of the future after-tax costs, which are reduced as a result of owning the asset.
- Credit Risk
It is a risk that a party to a contract will cause a financial loss for the other party by defaulting to discharge an obligation.
- Currency Risk
It is the risk that the value or future cash flows of a financial instrument will fluctuate due to changes in foreign exchange rates.
- Current Value Method
It is a method which allocates the Equity Value to the various equity interests in a Business as though the Business were to be sold on the measurement date, without considering the option-like payoffs of the share classes. This method is in contrast with Probability-Weighted Expected Return Method and Option Pricing Method.
- Customer-related Intangible Assets
These include customer lists, order or production backlog, customer contracts and related relationships, and non-contractual customer relationships.
D
- Debt
Debt is typically (i) all interest-bearing debt or (ii) long-term interest-bearing debt. This term is used when it is supplemented by a specific definition in the given valuation context. Depending on the context, debt may also include capital leases, underfunded pension obligations, and certain forms of preferred equity instruments.
- Defensive Intangible Asset
It is an intangible asset which a business entity does not intend to actively use, but rather intends to hold the asset to prevent other parties from obtaining access to it. Patent may be an example of this.
- Depreciated Replacement Cost
It is a method under the cost approach that determines value by calculating the current replacement cost of an asset less deductions for external physical, functional and economic obsolescence.
- Direct Sales Comparison Method
It refers to a valuation method in which the asset that is being valued is compared to transactions of similar assets in order to arrive at a value.
- Discount Rate Adjustment Technique
It is a present value technique which uses a single, most likely set of cash flows, discounted at a risk-adjusted rate which reflects the risk of ultimately receiving those cash flows in the amounts forecasted.
- Distributor Method
It is a variation of the Multi-Period Excess Earnings Method that may be applicable when the nature of the relationship between an entity and its customers is similar to that of a distribution company and its customers. To be exact, the Distributor Method is appropriate when the customer-related activities and the value added for the […]
E
- Economic Obsolescence
It refers to the loss of utility caused by factors external to the asset, specifically factors related to changes in demand for products or services produced by the asset, that results in a loss of value.
- Effective Date
The Effective Date means the date at which a standard becomes effective.
- En bloc Value
This is the entire value of a Business
- End of Period Discounting
It is a convention used in the Discounted Future Earnings Method that shows economic benefits being generated at the end of a stated period of time. This is in contrast with Mid-Period Discounting.
- Enterprise Value
This is the total value of the equity in a Business including the value of its debt or debt related liabilities, deducting any cash or cash equivalents available to meet those liabilities. It generally excludes non-operating assets/liabilities of the business.
- Equitable Value
It is the estimated price for the transfer of any asset or liability among identified knowledgeable and willing parties that reflects the respective interests of those parties.
- Equity Instrument
This refers to any contract that indicates a residual interest in the assets of an entity after deducting all of its liabilities.
- Equity Value
It is the value of a Business to all of its equity holders.
- Evidential Skepticism
This is the concept that Valuer must exercise due professional care by regularly questioning and critiquing information and data with an appropriate level of skepticism. The level of skepticism shall be based on the potential for bias within the information and data.
- Exit Price
It is the price which would be received to sell an asset or paid to transfer a liability.
- Expected Cash Flow
This refers to the probability-weighted average of a set of possible future cash flows.
- Expected Present Value Technique
This technique uses a set of cash flows that represents the probability weighted average of various cash flow scenarios.
- External Obsolescence
It is a loss of utility caused by economic or location factors external to the asset that results in a loss of value.
F
- Free Cash Flows to Equity
This is the cash flows available to pay out to equity owners after funding operations of the business, adjusting necessary capital investments, paying interest on debt and debt financing.
- Free Cash Flows to the Firm
This refers to the cash flows available to pay out to equity holders and debt holders after funding operations of the Business Enterprise and making necessary capital investments.
- Functional Obsolescence
It is a loss in value due to lower utility resulting from inefficiencies in the asset compared to a replacement asset.
G
- Going Concern Assumption
It refers to the assumption that a Business will maintain its activities for a foreseeable future.
- Greenfield Method
It is a Discounted Cash Flow Method of valuing an asset. This method develops projections of future capital investments, operating expenses and revenues and discounts these to present value.
- Guideline Transaction Method
It is a method within the Market Approach whereby pricing multiples are derived from transactions between unrelated parties of controlling interests in companies engaged in the same or similar lines of business, in order to establish a value. This is also known as Merger
H
- Highest and Best Use
It is the use that would produce the highest value for an asset from a market participant perspective. The use must be physically possible, legally permissible and financially
- Hurdle Rate of Return
It is a minimum rate of return required on an investment.
- Hybrid Method
It refers to a combination of scenario-based methods such as Probability Weighted Expected Return Method (PWERM) and the Option Pricing Method (OPM). The Hybrid Method uses probability-weighted scenarios, but with an OPM to estimate the allocation of value in one or more of the scenarios.
I
- Impairment
This is a loss in the value of an asset generally because of unexpected declines in expected future economic benefits from the asset. Impairment is often associated with reductions of certain asset values in a financial reporting context.
- Intellectual Property
It is a legal concept that refers to creations of the mind that are derived from intellectual or creative effort for which exclusive rights are recognized. Intellectual property can be categorized as registered or unregistered, and includes, but is not limited to trademarks, trade names, patents, copyright, design rights, and confidential information.
- Interest Rate Risk
It refers to the risk of changes in a hedged item’s value or cash flows attributable to changes in the designated benchmark interest rate.
- Internal Valuation Professional
A Valuer who is employed by the owner or manager of an asset.
- Investment Method
It is a valuation method within the Income Approach which capitalizes expected future income as a basis for estimating value.
L
- Levered Cost of Equity
It is a Discount Rate or Capitalization Rate that reflects the cost of equity capital to a business, taking into account both operating risk and financial risk.
- Liquidation
This refers to the process of converting assets into cash and settling obligations with creditors in anticipation of the entity ceasing all activities.
M
- Market Participant Acquisition Premium
It is the difference between (1) the pro rata fair value of the subject controlling interest; and (2) its foundation. Foundation is measured with respect to the current stewardship of the enterprise. Market Participant Acquisition Premium generally does not include the effect of Synergies from a particular buyer unless there are sufficient number or market […]
- Market Participants
It refers to the whole body of individuals, companies, or other entities involved in actual transactions or contemplating entering into a transaction for a particular type of asset. This is a central concept of accounting standards such as IFRS and US GAAP.
- Market Risk
It is a risk that affects an entire market and not just specific participants or assets. Market Risk cannot be diversified. Market Risk comprises the following (i) interest rate risk, (ii) currency risk, and (iii) other price risk.
- Market Value
It is the estimated amount for which an asset or liability should exchange on the valuation date between a willing buyer and a willing seller in an arm’s length transaction, after proper marketing and where the parties had each acted knowledgeably, prudently, and without compulsion.
- Mid-Period Discounting
It is a convention used in the Discounted Future Earnings Method that reflects economic benefits being generated at a mid-period, approximating the effect of economic benefits being generated evenly throughout the period. This technique is in contrast with End of Period Discounting.
- Monte Carlo Method
It is a statistical technique used to sample randomly from a probability-distribution, to produce different possible outcomes in order to simulate the various sources of uncertainty that affect the value of an instrument, asset, portfolio or investment in question.
- Most Advantageous Market
It is the market that maximizes the amount that would be received to sell the asset or minimizes the amount that would be paid to transfer the liability, after taking into account transaction costs and transport costs.
- Multi-Period Excess Earnings Method
This is a multi-period variation of the Excess Earnings Method.
N
- Net Asset Value
It is the difference between assets and liabilities, all taken at current market values instead of accounting book values.
- Net Book Value
It is the difference between total assets and total liabilities as they appear on the balance sheet with respect to a Business Enterprise. With respect to a specific asset, the capitalized cost less accumulated amortization or depreciation as it appears on the books of account of the Business Enterprise.
- Net Realizable Value
This is the net proceeds receivable upon the sale of an asset, after providing for all costs of disposition, including taxes.
- Net Tangible Asset Value
It is the value of a Business Enterprise’s tangible assets minus the value of its liabilities.
- Nominal Cash Flows
It is the actual amount of money in a particular currency that a business enterprise expects to receive or pay, including the effects of inflation.
- Nominal Rate of Return
It is a rate of return that includes both a Real Rate of Return and an inflation component. Certain definitions state that a Nominal Rate of Return also excludes expenses such as taxes and investment fees.
- Non-identifiable Intangible Assets
These are those intangible assets that cannot be readily segregated from the operations of a business enterprise that is a going concern. Examples include deferred charges and goodwill.
- Notional Market Valuation
It is the determination of an estimate of value in the absence of an Open Market Transaction.
O
- Open Market Transaction
It refers to the purchase and sale of an asset, business, or interest therein, as negotiated between parties acting independently of each other following an appropriate period of market exposure.
- Option Pricing Method
It is a forward-looking valuation method used to allocate value between various classes of equity, assuming various future outcomes. The Option Pricing Method considers the current Equity Value and then allocates that value to the various classes of equity considering a continuous distribution of outcomes, rather than focusing on distinct future scenarios. This method generally […]
P
- Physical Obsolescence
It is a loss of utility because of the physical deterioration of the asset or its components resulting from its age and normal usage that results in a loss of value.
- Portfolio
This is a combination of various assets or liabilities held or managed by a single entity.
- Post money Value
It is an enterprise’s value immediately after its most recent round of financing.
- Pre Money-Value
It is an enterprise’s value immediately before its most recent round of financing.
- Premium for Forcible Taking
It is also referred to as a “forcing out premium” or “strategic purchase premium,” it represents a premium over the fair value of an equity interest awarded by the courts where a shareholder has been forced out of a company following a business combination.
- Price
It is the consideration paid, expressed in terms of cash equivalents, in an actual transaction involving the purchase and sale of an asset, business or investment.
- Principal Market
It is the market with the greatest volume and level of activity for the asset or liability.
- Probability-weighted expected return method (PWERM)
This is a scenario-based method for valuing equity interests through an analysis of future values for the enterprise, assuming various, discrete, future outcomes. Under PWERM, value is estimated based on the probability-weighted present value of various future outcomes for the business.
- Professional Judgement
This refers to the process of making informed and reasonable decisions that are based on the cumulative experiences of the valuer. This is a skill that requires competence in valuations and results in decisions that reflect best practices of the valuation profession.
- Professional Skepticism
It is an attitude that includes a questioning mind and critical assessment of valuation evidence. The valuer uses the knowledge, skill, and ability called for by the valuation profession to diligently perform, in good faith and with integrity, the gathering and objective evaluation of evidence. Professional skepticism requires that the valuer has an attitude that […]
- Prospective Financial Information
This refers to any financial information about the future. The information may be presented as complete financial statements or limited to one or more elements, items, or accounts. Prospective Financial Information includes forecasts.
- Purchase Price Allocation
This refers to the allocation of the price paid for a business among the assets acquired. The standards governing purchase price allocation are established by financial reporting, tax or other authorities.
R
- Ratable Value
It is the portion of the En bloc value represented by each ownership percentage. It is also known as Pro Rata Value.
- Real Cash Flows
It is the nominal cash flows adjusted to exclude the effect of price changes over time.
- Real Rate of Return
It is an amount of income realized or expected on an investment, expressed as a percentage of that investment. A real rate of return does not include an inflation component.
- Relief from Royalty Method
It is a method that estimates the value of an intangible asset by reference to the value of the hypothetical royalty payments that are saved through owning the asset, as compared with licensing it from a third party. It is also known as Royalty Savings Method.
- Report
It is a document that communicates the conclusion of a valuation or an appraisal and relevant associated matters to its intended recipient.
- Residual Value
It is the value as of the end of the discrete projection period in a discounted future earnings model.
- Retrospective Valuation
This refers to a valuation that is performed after the as-of date of the valuation and that is not considered to be a contemporaneous valuation.
- Royalty
This is a payment made for the use of an asset, especially an intangible asset or a natural resource.
S
- Salvage Value
It is the value of an asset at the end of its economic life for the purpose it was made. The asset may still have value for an alternative use or for recycling.
- Self-Skepticism
It is the concept that a valuer must regularly monitor their client-based presuppositions that could detract from applying skepticism as a result of comfort level or familiarity with the client, industry, or both.
- Standalone Value
It is the value of a business interest determined without reference to prices that might be paid by purchasers who perceive post-acquisition synergies. It is also known as Intrinsic Value.
- Summation Method
It is a valuation method that provides an indication of the value of an entire asset by the addition of the separate values of its component parts. It is also known as Sum of the Parts Method.
- Sustainability
It is the consideration of matters such as environment and climate change, health and well-being and corporate responsibility that can or do impact on the valuation of an asset. In broad terms it is a desire to carry out activities without depleting resources or having harmful impacts.
- Synergies
It is the concept that the combined value and performance of two businesses will be greater than the sum of the separate individual parts, used mostly in the context of mergers and acquisitions. In the context of developing prospective financial information, synergies refer to the difference between the assumptions used to estimate cash flows that […]
- Synergistic Value
It is the result of a combination of two or more assets or interests where the combined value is more than the sum of the separate values.
- Systemic Risk
It is the risk of damage to a system arising from the failure or collapse of a component element of that system.
T
- Tax Amortization Benefit
It is the present value of income tax savings resulting from the tax deduction generated by the amortization of an Intangible Asset.
- Technology-related Intangible Assets
This is broadly defined as intangible assets that create proprietary knowledge and processes. Some examples of intangible assets generally included in this category are patents, patentable inventions, trade secrets, know-how, proprietary processes, proprietary product recipes or formulae, confidential information, copyrights on technical materials such as computer software, technical manuals, and automated databases.
U
- Unit of Account
It is the level at which an asset or a liability is aggregated or disaggregated for financial reporting purposes.
- Unlevered Cost of Equity
It is a discount rate or capitalization rate that assumes a debt-free capital structure.
- Unobservable Inputs
These are the inputs for which market data are not available and that are developed using the best information available about the assumptions that market participants would use when pricing the asset or liability.
V
- Valuation Date
It is the specific point in time at which the valuer’s conclusion of value applies. The valuation date should also include the time at which it applies if the value of the type of asset can change materially in the course of a single day. It is also known as Effective Date; Appraisal Date; Measurement […]
- Valuation Inputs
These refers to data and other information that is used in a valuation engagement. Inputs may be actual or estimated.
- Valuation Model
It is a tool used by valuer to estimate the value of an asset, consisting of a series of calculations involving the application of valuation techniques and the informed judgement of the valuer.
- Valuation Multiple
This refers to any multiplier used to convert into value the expected economic benefits of a single period. It is also known as Multiple. The valuation multiple is the inverse of a capitalization rate.
- Valuation Procedure
It is the act, manner, and technique of performing the steps of a valuation method.
- Value in (Continued) Use
It is the value of the assets of an operating business viewed as a pool of assets in a specific use. Value in use is determined by reference to the contribution of that asset pool to the ongoing business.
- Value in Exchange
It is the worth of an asset or pool of assets if sold in the open market.
- Valuer
This refers to an individual recognized as possessing the competencies, experience and qualifications to perform valuations in a competent manner. This is also known as valuation specialist, valuation analyst, valuation professional, valuator or appraiser.
- Voting Control
This refers to legal control of a business enterprise.
W
- Waterfall
This refers to the contractual allocations of cash flows returned to the various instruments in an enterprise or to the limited and general partners in a fund, reflecting the seniority of each claim.
- Weighted Average Cost of Capital (WACC)
It is the cost of capital determined by the weighted average, at market value, of the cost of all financing sources in the business enterprise’s capital structure.
- With and Without Method
This is a method that indicates the value of an intangible asset by comparing an estimate of the profits or cash flows that would be earned by a business using the asset with those that would be earned by a business that does not use the asset.
Frequently Asked
Questions
Have questions about our platform and services? Find answers to common queries below
Valuation is the process of determining the current worth of an asset or a company. It is based on various factors including financial performance, market conditions, and potential for future earnings.
Valuation is crucial for a variety of reasons such as investment analysis, capital budgeting, merger and acquisition transactions, financial reporting, and tax assessments.
Fair value is an estimate of the market value of an asset, based on what a knowledgeable, willing, and unpressured buyer would pay to a willing, unpressured seller in the market.
Valuation: Assesses an asset's intrinsic worth through fundamental analysis, examining factors like cash flows, growth potential, and risk to determine its true economic value.
Pricing: Reflects an asset's market value, influenced by supply and demand, investor sentiment, and market conditions, often differing from its intrinsic value.
Corporate Professionals is both IBBI Insolvency and Bankruptcy Board of India Registered Valuer and SEBI Registered Category I Merchant Banker and are well equipped to perform every kind of valuation. We usually take 7 business days to deliver the signed valuation report.
Valuation often depends on specific circumstances and regulatory requirements. However, it is generally advisable to conduct a fresh valuation every six months. This frequency is recommended because valuation is influenced by various factors, such as the company's financials, the economic environment, and growth rates.
Valuation helps determine the fair value of assets and liabilities, which is essential for financial statements and audits.
Valuation is used for computing capital gains, transfer pricing, and other tax-related matters to comply with tax regulations.
Valuation is based on assumptions, market data, and projections, which may not always reflect the actual market price.
Valuations can be performed by certified professionals such as Insolvency and Bankruptcy Board of India Registered Valuer, SEBI Registered Merchant Bankers, Chartered Accountants (CAs), Cost Accountants, Chartered Financial Analysts (CFAs), and other financial experts with relevant experience and credentials.
A registered valuer, as per the Companies Act 2013, is an individual or entity registered with the Insolvency and Bankruptcy Board of India (IBBI) who can undertake valuations required under various regulations.
A good valuer should have a strong background in finance, accounting, and business analysis, relevant professional certifications, experience in the industry being valued, and a thorough understanding of valuation methodologies and market dynamics.
A registered valuer is licenses with Insolvency and Bankruptcy Board of India (IBBI), while merchant bankers are licensed from SEBI. Both are regulated by different regulatory bodies and have their own significance.
“Merchant banker” means any person who is engaged in the business of issue management either by making arrangements regarding selling, buying or subscribing to securities or acting as manager, consultant, adviser or rendering corporate advisory service in relation to such issue management.
Independent valuers follow established valuation standards and avoid conflicts of interest to provide unbiased valuations.
Yes, valuations can be reviewed or challenged by auditors, regulators, or stakeholders if they identify discrepancies.
Merchant bankers issue valuation certificates for preferential allotments to comply with Income Tax.
Yes, some professionals specialize in sectors like real estate, startups, manufacturing, or intellectual property, requiring niche expertise.
Valuation may be required for mergers and acquisitions, fundraising, regulatory requirements, litigation, and other purposes such as financial reporting and strategic planning.
The frequency of valuation updates depends on the purpose. For financial reporting, it might be annual; for dynamic and high-growth sectors, more frequent updates may be needed.
Yes, valuations are particularly important for startups for various purposes including fundraising, equity distribution among founders and employees, and strategic planning.
Startups should perform valuations during each fundraising round, or whenever there is significant business growth.
It helps assess how much equity to offer in exchange for capital, ensuring fair deals for investors and owners.
Valuation date is the specific date at which the valuer estimates the value of the underlying asset.
The valuation certificate issued by SEBI registered Merchant Banker must not be more than ninety days old as on the date of the transfer.
Yes, valuations help determine each partner's contribution and ownership share in joint ventures.
Valuation provides insights into asset worth, enabling businesses to prioritize investments, divestitures, and expansions.
Factors include financial performance (revenue, profit margins, and cash flow), market conditions (industry trends and economic outlook), assets and liabilities, growth potential (future earnings and business expansion plans), and intangible assets (brand value, intellectual property, and customer relationships).
Required documents include financial statements (balance sheet, income statement, cash flow statement), business plan or forecasts, details of assets and liabilities, information on intellectual property and intangible assets, industry reports and market analysis, and previous valuation reports if any.
A valuation report is a comprehensive document prepared by the valuer that includes details of the methodology used, the data considered, the assumptions made, and the final valuation outcome along with a justification of the value derived.
The objective of a valuation report is to present the result of findings of a comprehensive appraisal of and revealing a user-specific value for, one or more items.
Valuation base means the indication of the type of value being used in an engagement. Different valuation bases may lead to different conclusions of value. Therefore, it is important for the valuer to identify the bases of value pertinent to the engagement.
ICAI Valuation Standard defines the following three valuation bases:
(a) Fair value.
(b) Participant specific value; and
(c) Liquidation value
Forecasts provide future cash flow and growth estimates, which are critical for methods like Discounted Cash Flow (DCF).
Intangible assets like patents, trademarks, and goodwill add significant value to businesses, particularly in knowledge-driven industries.
Market trends and economic conditions influence asset demand and comparable transaction values.
Higher risks, such as economic instability or industry uncertainty, typically reduce a company's valuation.
Market multiples are used in comparative valuation methods, such as the Comparable Company Analysis (CCA) and Precedent Transactions Analysis, where key financial metrics (e.g., P/E ratio, EV/EBITDA) of similar companies are used to estimate the value of the subject company.
Terminal value represents the estimated value of a business beyond the forecast period in a Discounted Cash Flow (DCF) analysis. It accounts for the majority of the total value in many DCF valuations.
Yes, multiple valuation methods can be combined to get a more accurate and comprehensive view of a company’s value. This is known as the triangulation approach, where the results from different methods are analyzed together.
Equity Value is the value of the business attributable to equity shareholders. It can also be formulated as:
Equity value = Market capitalization
Add: fair value of all stock options (in the money and out of the money)
Add: Value of convertible securities in excess of what the same securities would be valued without the conversion attribute
Enterprise Value is the value attributable to the equity shareholders plus the value of debt and debt like items, minority interest, preference share less the amount of non-operating cash and cash equivalents.
The fair market value is the price at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or to sell and both having a reasonable knowledge of relevant facts.
Rule of thumb or benchmark indicator is used as a reasonable check against the values determined by the use of other valuation approaches in a valuation engagement. • Rule of thumb may provide insight into the value of a business or business ownership interest. Some of the examples of rule of thumb or benchmark valuation would be value based on transaction multiples for capacity or turnover. • It shall not be used as the only method to determine the value of the asset to be valued.
Fair value is usually synonymous to fair market value except in certain circumstances where characteristics of an asset translate into a special asset value for the party(ies) involved.
Valuation plays a crucial role at every stage of a firm's life cycle. For small private businesses looking to expand, valuation becomes essential when approaching foreign investors, venture capitalists, or private equity firms for capital infusion. The share of ownership an investor will demand in exchange for funding depends on the firm’s estimated value. As companies grow and plan to go public, the share price for public issuance is determined based on the firm’s value, aligning with applicable laws and regulations. Additionally, key decisions such as fund allocation, borrowing from financial institutions, and returns to owners are all influenced by the valuation of the firm.
• Value is specific in Point of time
• Value principally depends on the ability of the business to generate discretionary cash flow
• Value also depends greatly on the market forces
• Principle of Risk and Return
• Principle of Reasonableness and Reconciliation of Value
• Value is influenced by Underlying Net Tangible Assets
• Value is influenced by Liquidity
• The Value of Minority Interest is less than the Value of a Controlling Interest.
An IPO valuation is the process of determining the market value of a company at the time of its initial public offering. This valuation helps in setting the price at which the company’s shares will be offered to the public.
Valuation impacts mergers and acquisitions by determining the fair value of the company being acquired or merged. It helps in negotiating the purchase price and structuring the deal terms.
Valuation determines the fair exchange ratio of shares for merging or demerging entities.
Valuation helps determine the fair price for shares, ensuring they are priced appropriately for investors. It also enables the company to assess how much capital can be raised through the share issue.
In financial reporting, valuation ensures that assets, liabilities, and equity are accurately represented at their fair market value. It helps in providing stakeholders with reliable financial statements, reflecting the true financial health and performance of the company.
Valuation is important for shareholders as it helps determine the true value of their investments, guiding decisions on buying, selling, or holding shares. It also ensures that the company’s financial health and growth prospects are accurately reflected, influencing shareholder returns.
Voluntary valuation refers to the process where a company or individual chooses to have an asset, business, or investment valued, even though there is no legal or regulatory requirement to do so. This is often done for purposes such as mergers, acquisitions, strategic planning, or financial reporting, to gain an objective assessment of value.
Valuation provides insights into the financial health and growth potential of a business, helping owners make informed decisions about entering new markets or expanding operations.
Valuation is crucial for fundraising as it helps determine the price at which equity or debt can be offered to investors, ensuring fair terms for both the company and investors. It also gives potential investors a clear understanding of the company’s worth, risk, and growth potential, influencing their decision to provide capital.
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