Valuation Report Preparation

“India has witnessed many startups coming up in recent time period and due to this is there is too much of Investment in them and transfer of stake and Business transfers too, and when a Business or Shares are transferred from one party to another, it’s is important for both parties to know worth of shares at given point of time and to know that value of assets needs to be known, this activity to know worth of business is called valuation”.

Net Asset Method or NAV Method- In this valuation is done from last audited financials of company, however it gives historical cost of business and potential to generate revenue can’t be calculated.
At Intrinsic Value- Earnings Capitalisation Method- In this method, intrinsic value of assets is calculated, factors such as market value or replacement cost is considered , notional cost are also attached.
Earnings Capitalisation Method- In this, future maintainable earning level of the entity is determined from its current operations, normal business revenue and expense to be considered only. Non recurring/extraordinary income/expenses needs to be removed and weightage needs to be given for financial year considering discount factor also for future profits as per inflation.
Yield Method- Value is calculated by considering the return on capital employed, this method can be used only for established companies having consistent record. This methods is not in much use now a days as it doesn\’t consider future capital or working expenditure.
Market Price Method- In this method valuation is done on basis of market price as per stock exchange, average of quoted price is considered as indicative of the value perception of the company. However in case Market price is not fair reflection of company assets and liabilities this method is of no use.
Discounted Cash Flow Method- This is most popular method of valuation in current scenario , he DCF method values the business by discounting its free cash flows for the explicit forecast period and the perpetuity value thereafter. The free cash flows represent the cash available for distribution to both the owners and the creditors of the business.