1. BUSINESS VALUATION

2. WHAT IS BUSINESS VALUATION? Business Valuation is a process that is used to determine the economic value of a business or company. is used to estimate the price or fair value of a business that Business buyers and sellers are willing to pay or receive to effect sale of a business. can be done for a number reasons including buying, selling, establishing partnerships, mergers & acquisitions most common standard of value used is the fair market value which is the value of a business enterprise determined between –a willing buyer and a willing seller –in an arms length transaction –in an open and unrestricted market –both in full knowledge of all the relevant facts and –neither compelled to conclude a transaction.

3. METHODS OF VALUATION There are mainly three approaches to valuation namely: Value of net assets ASSET APPROACH Comparable companies MARKET APPROACH Profits and cash the business will generate in future INCOME APPROACH

4. SIGNIFICANCE OF VALUATION METHODS ASSET APPROACH Asset based approach is used  when the business is based on assets (real estate business)  When the business is not a going concern (liquidation value)  To find the alternative cost of setting up a new business (Organic growth Vs Acquisition) MARKET APPROACH Market based approach is done using  comparable companies  comparable transactions  Market value of quoted securities INCOME APPROACH  Capitalization of earnings  Discounted Free Cash Flow

5. HOW TO MAKE RIGHT VALUATION Look at the Pupose of Valuation Choose the right method See if results make sense If possible, choose one more method Arrive at the valuation by averaging both methods

6. VALUATION METHODS

7. VALUATION MODELS DISCOUNTED CASH FLOW MODELS ASSET BASED VALUATION RELATIVE VALUATION CONTINGENT CLAIMS MODEL LIQUIDATION VALUE REPLACEMENT COST

8. VALUATION RATIONALE Valuation Rationale GROWTH POTENTIAL HIGH RETURN ON INVESTMENT HIGH REPEAT ORDERS CAPABLE EXECUTION TEAM STATE OF ART FACILITY MARQUEE LIST OF MNC CUSTOMERS SUN-RISE INDUSTRY

9. MOST WIDELY USED MUTLIPLES BY SECTOR Sector Multiple UsedRationale/ Comments Cyclical ManufacturingPE, Relative PEOften with normalized earnings. High Tech, High GrowthPEGBig differences in growth across firms make it difficult to compare PE ratios High Growth/Negative EarningsPS, VSAssume future margins will be positive InfrastructureV/EBITDAFirms in sector have losses in early years and reported earnings can vary depending on depreciation method. REITP/CFRestrictions on investment policy and large depreciation charges make cashflows better measure than equity earnings Financial ServicesPBVBook value often marked to market. RetailingPS VSIf leverage is similar across firms. If leverage is different.

10. WHY SHOULD YOU GO FOR VALUATION? WHY VALUATION? Consideration for acquisition/sale Corporate Restructuring Value of shares for listing in the stock exchange Liquidation/ Regulatory Mandate

11. VALUER VIEWPOINT National Footpri nt Business Model VALUER VIEWPOINT Stage of Business Cycle Choosing the right valuation model Minimize the Impact of Bias from Valuation Key assumptions Financial Data

12. CHECK POINTS FOR VALUATION Stage of Business Cycle Non Operating Asset or Excess CashDiscounts and PremiumsReceived Best Global Supplier Award from Federal MogulCorporate Governance and TransparencyIntangible Asset ValuationImpact of Seasonal Events Non recurring/extraordinary items, Other Income Off Balance Sheet itemsConsistency in Accounting PracticesOperational Environment – Legal and Tax 1 1 22 3 3 4 4 5 5 6 6 7 7 8 8 9 9 10

13. STANDARDS FOR INTERNATIONAL BUSINESS VALUATION Stage of Business Cycle ICAI VALUATION STANDARD THE CANADIAN INSTITUTE OF CHARTERED BUSINESS VALUATORS INSTITUTE OF BUSINESS APPRAISERS VALUATION STANDARD OF AMERICAN INSTITUTE OF CPAs NATIONAL ASSOCIATION OF CERTIFIED VALUATION ANALYSTS AMERICAN SOCIETY OF APPRAISERS

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