Professional Documents
Culture Documents
What is Business?
State of being busy, in the context of the individual as well as the community or society. The social science of managing people to organize and maintain collective productivity toward accomplishing particular creative and productive goals, usually to generate profit.
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What is Valuation?
The act or process of assessing value or price of financial asset or liability; Valuation is done of assets-tangible as well as intangible and also for liabilities e.g. bonds issued Financial valuation may involve Asset valuation Business valuation
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Value to whom?
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Valuation time
Events that trigger the need for valuation Disputing the conclusions of regulatory investigation Planning for an initial public offering of company shares Selling the company or hiving off a division Conducting a major strategic-planning Applying for loan Seeking investors
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Valuation time
Creating a company stock-option plan. Breaking up a partnership Getting a divorce Liquidation /Filing for bankruptcy. Doing estate or gift planning that involves company stock
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VALUATION PROCESS
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ENGAGEMENT OF EXPERT
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Understanding the concept and purpose of valuation Taxation aspects Accounting standards related to business combinations, intangible assets, employee options and financial instruments Understanding of performance measurement criteria for stock options
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Engagement of expert
Determine that the expert has the competence and experience . Consider and discuss whether there is any conflict of interest. Determine if the expert has sufficient resources to perform the work Consider scope of work to be performed and other issues, including the plan for payment of fees and expenses.
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Engagement of expert
Determine the standards to be used Determine the criteria that will be used to measure the experts/advisers work and document those criteria in an agreement Consider Form of report Draw up a confidentiality agreement
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Engagement of expert
Determine the legal interest to be valued & purpose of valuation Fees should be one of the considerations of selecting do not settle for lowest vendor or use competitive bidding.
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Issues to be considered
Nature of business History of Business Economic outlook and the conditions of the specific industry Financial condition and companys earning capacity Dividend paying capacity and history Market price of comparable publicly traded companies Goodwill of the company Dependency of companys value on current management
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Information to be provided
Financial statements Tax returns Accounts receivable, accounts payable and inventory detail Contracts/leases Budgets/forecasts Governance body minutes Organization chart Marketing material/price lists
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Resources required
1. 2. 3. 4. 5. Business valuation publications Industry information Economic data Market transaction data Other resources
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ESOP Valuation
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2. Industry information
Industry overview Issues Trends & outlook Financial ratios and benchmarking Compensation and salary structure
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3. Economic data
Bond yields and interest rates Inflation and cost living data Economic forecast resources.
5. Other resources
Business valuation multiples (derived from company merger and acquisition transaction data) Legal and tax resources Tax regulations Case laws
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Valuation process
Decide on business valuation method to be used Analyze the company information in conjunction with the industry and comparable company data.
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REPORTING PROCESS
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Contents of report
Description of engagement Description of business being valuedbackground Description of the information underlying the valuation Budgets Assumptions Availability and quality of underlying data Statement of responsibility for information received
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Contents of report
Description of procedures Principle of valuation used Valuation method used Procedure for making projections Significant assumptions Conclusion Clear range of values and explanation
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Valuation Reports
Limited Scope Valuations Formal Valuations Mergers and Acquisitions Comprehensive valuations
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Cost of Valuation
The cost depends on : Revenue of the business The purpose of the valuation Obtain a ballpark figure or price range Asset allocation Estate planning Partnership Litigation
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Cost of Valuation
The availability, completeness and organization of the company's financial records The type of details required in the report Simple estimate of price range Report with supporting documentation Comparison with peer operations Financial projections
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Fee structure
A deposit to review the project and list of fixed assets. After the review, the adviser will prepare an outline for business valuation and will prepare a quote for services . Disbursements and other miscellaneous charges are additional. These include expenses incurred during the project, for example, travelling, telephone and photocopy.
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SELLING A BUSINESS
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Define priorities Expectation from sale Terms of payment Expectation from buyer-continue with traditions etc. Timing of sale When economy is strong Industry performance is all time high Plan early Make business attractive Take time to find appropriate buyer
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Renew all contracts and leases: Prospective buyers may not prefer a business if immediately on acquisition they have to renegotiate key contracts & leases. Take the help of experts: numerous regulations and tax matters to be considered .Also, owners are emotionally attached to do the valuation on their own.
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Tax concerns
Structuring the Sale-Structure to minimise tax liability Structuring the company Sale of assets or sale of stock Reporting the sale
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Remember!
Method of valuation selected depends on purpose of valuation All valuation models have their limitations Results will depend on quality of input data All valuation models involve large number of assumptions
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