Shailesh Prajapati
Corporate Valuation, its methods and Importance
Looking at today's Digital economy and businesses multiplying their growth by way of in-organic growth, it is necessary to step into the Valuation of a Business or Division or Unit of a Firm. Every Business has a Value which is based on present as well as Future Market of the Product. If the company have multiple product, then the value will be depend on the Valuation of the Niche Segment as well as the other product. For On going business, since we have trend of the business and prospects/projections can be arrived at, DCF method can be planned. Some time it is very easy to check the value of one similar Firm and value our business based on the Various relative measures. In that case we do valuation based on Relative Valuation method. In case of Start up company, we do not have past trend as well as future prospects, we have other method of valuation which is discussed at the end of this Article.
There are Certain Methods of Valuation, such as
- NAV Method
- PECV Method
- DCF Method (Two stage and Three Stage)
- Relative Valuation
- Brand Valuation
- Valuation of Startups
- Economic Value Added
- Market Value Added
Every author have given different approaches towards valuation. Although Regulatory if following DCF valuation method, it is necessary to know the basics of all methods.
Broadly we are focusing today on DCF, Relative Valuation, Start up Valuation and EVA and MVA. Regarding First Two methods, it is not theory only and the value is only supported by this data and not done as a primary working.
Value: Value has following ingredients
- Present Value of Future Cashflows
- Work out Future Cashflows
- Rate of discounting
- Risk Factor
- Risk Premium
- Risk Free Return
- Expectation from Business/ Industry
- Estimation of the Revenue and Expenses
- Estimation of Capex and Working Capital
Value Drives
- Business Prospects
- Growth of Industry
- Management Philosophy
- Succession Planning
- Sourcing of Supplies/Manpower/Attrition Rates etc.
- Competitor mapping
- Threats
- Terminal Period and Terminal Growth
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