Valuation services is an analytical process of estimating the value of the company or the assets owned by the company. We offer business valuation services for regulatory and tax purposes, transaction, litigation.
Valuation assesses a market’s competition, income, debts, the value of assets in order to reveal a company’s growth.
Businesses require a valuation for a number of purpose among which are purchase and sale, obtaining a listing, raising investment capital, inheritance tax and capital gains tax computations. Valuation is mainly used by players in the financial market to determine the price they are willing to pay or receive to effect the sale of a business.
The main goal of valuation services is to stay updated with the current market situations in order to make good business decisions.
Matthew Ogagavworia and Co. (Chartered Accountants) is highly experienced business valuation, forensic accounting, tax consulting, due diligence, budgeting and forecasting, financial modelling, business restructuring, training and advisory.
Our Valuation Services assist our clients which are spread across various industries with transaction pricing, fairness opinions and advisory services, group restructuring and fiscal valuations, mergers & acquisitions and dispositions, valuation advice for investment and capital expenditure assessment, financial reporting; bankruptcy and reorganization, litigation and dispute resolution; and strategic planning.
Mathew Ogagavworia and Co. (Chartered Accountants) boasts of seasoned business valuation experts with excellent qualifications, skills, and experience to perform in-depth valuations for businesses of all sizes across various industries.
Valuation is the process of placing a value on a business or an asset. This involves a review of the management of the business, the prospective future earnings, the market value of the company’s assets, and its capital structure composition. This gives us a fair value that willing sellers and buyers should exchange to consummate the sale. Valuation provides an idea of whether an asset is overvalued or undervalued by the market. It is typically in relation to market values.
Litigation in divorce, personal injury, as an exit strategy, when there is a plan to sell a business so that precise market values of the business can be estimated, when buying a business so that investors don’t pay more than a business is really worth when a business is being sold so that the seller gets a good value for its sale, capital budgeting, investment analysis, financial reporting, strategic planning such that should the assets need to be replaced, a proper valuation will guide decision-making, business reorganizations, shareholder disputes, employee stock or share option plans, mergers and acquisitions, and expropriations, funding a business with lenders and investors and partial sale of shares in a business. Valuation exercises help us to place value on assets, liabilities and value of a business.
It is understandable for a businessman to know the value of his business. Think the business valuation methodology as a “subjective science”. This means when valuing your business, you must apply standard valuation methods. The subjective means that every buyer’s circumstances and considerations are different, so for the same business two buyers may propose two different offers. A common way to know the value of your business is by having a look at your business balance sheet, which will give you the “book value” of your business, or total equity. In truth, however, your business’s book value is just one of many business valuation methods out there, all of which take different factors into consideration.
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There are many business valuation methods one can apply to determine the value of his business. The best valuation method typically depends upon why the valuation is needed, the size of your business, your industry, and other factors. The most common valuation methodologies are under-listed:
The Income Approach quantifies the Net Present Value (NPV) of future benefits associated with ownership of the equity interest or asset. The estimated future benefits that accrue to the owner are discounted or capitalized at a rate appropriate for the risks associated with those future benefits. Common ways of using Income Approach valuation are:
Your business valuation can also be determined through the market valuation approach. This is done by comparing your business with other similar businesses that have been sold the market. This approach can be used to calculate the business property’s value or as a portion of the valuation method for a closely held company. This approach can be utilized to find out the value of an intangible asset, security, or a business ownership interest. The market approach analyses the sales of every similar asset, and adjustments made for the differences in quality, quantity, or size, regardless of which asset is being valued.
The asset-based approach uses the current value of a company’s tangible net assets as the key determinant of fair market value. This approach is typically used where a business is not a going concern, or where a business is a going concern but its value is tied directly to the liquidation value of its underlying tangible assets and investments. The asset-based approach also provides a useful reasonableness check when reviewing the value conclusions derived under the income or market approaches.
Valuation of various assets can be made by using different methods. Valuation of fixed assets can be made in different ways. Some of the major methods are as follows:
In this method, your assets are valued on the basis of the purchase price of the assets. It is a very simple method of valuation of assets.
Market Value Method
Your assets can be valued based on their current market prices. There are two methods related to the market value method. They are; Replacement Value Method (If the same asset is to be purchased then on the basis of the same value, valuation of assets can be done) and Net Realizable Value (It refers to the price in which such asset can be sold in the market. But expenditure incurred at the sale of such asset should be deducted).
Base Stock Method
Base Stock Method deals with the company maintaining a certain level of stock and valuation of the stock is made on the basis of valuation of base stock.
Standard Cost Method
Some of the business organizations fix the standard cost on the basis of their past experience. On the basis of standard cost, they make the valuation of assets and present in the balance sheet.
Average Cost Method
It is a simple method for the valuation of such assets which cannot be distinguished. Like petrol, petrol is kept in the tank but cannot separate its stock on the basis of the lot. So, the valuation of the stock is made adding to all the cost and dividing by the quantity.
Steps to Asset-based Approach:
The benefits of adopting this approach include the following:
Long-term financial planning and budgeting;
Influence over senior decision-makers’ investment decisions;
Performance assessment and benchmarking;
Prioritization of resource allocation, locally, regionally, and nationally;
Production of transparent information for stakeholders on the organization’s management of its road assets;
Production of financial information that is compliant with local or International Financial Reporting Standards (IFRS).
Equity Valuation Methods can be classified into:
Balance sheet methods: Balance sheet methods are the methods which utilize the balance sheet information to value a company. These techniques consider everything for which accounting in the books of accounts is done. Balance sheet methods comprise of:
Book value: In this method, book value as per balance sheet is considered the value of equity. Book value means the net worth of the company. Net worth is calculated as follows Net Worth=Equity Share capital+ Preference Share Capital+ Reserves and Surplus-Miscellaneous Expenditure (as per balance sheet) – Accumulated Losses.
Liquidation value: Liquidation value is the value realized if the company is liquidated today. It is computed as follows: Net Realizable value of all assets-amounts paid to all creditors including preference shareholders.
Replacement value methods: This means the cost that would be incurred to create a duplicate firm is the value of the firm.
Earning Multiple methods: Earnings multiple or Relative Valuation methods are also called comparable methods because they use peers or competitors value to derive the value of the equity. The importance here is of deciding which factor to be considered for comparison and which companies should be considered peers. The following under-listed are methods of Earning Multiple:
Price to Earnings Ratio: The price-earnings ratio, often called as P/E ratio is the ratio of the company’s stock price to the company’s earnings per share. It is a market prospect ratio which is useful in valuing companies. In simple words, the P/E ratio is obtained by comparing the market price per share with its relative dollar of earnings per share. The relationship between the two essential parts of this ratio i.e. Market value of the stock and its relative earnings shows what the market is willing to pay for a stock based on its current earnings. Thus, it is also known as the price multiple or the earnings multiple.
Price to Book Value: Companies use the price-to-book ratio to compare a firm’s market to book value by dividing the price per share by book value per share (BVPS). An asset’s book value is equal to its carrying value on the balance sheet, and companies calculate it netting the asset against its accumulated depreciation.
Price to sales ratio: The price-to-sales (P/S) ratio is a valuation ratio that compares a company’s stock price to its revenues. It is an indicator of the value placed on each dollar of a company’s sales or revenues. The P/S ratio can be calculated either by dividing the company’s market capitalization by its total sales over a designated period – usually twelve months, or on a per-share basis by dividing the stock price by sales per share. The P/S ratio is also known as “sales multiple” or “revenue multiple.”
Discounted cash flow methods are based on the fact that present value all future dividends and the future price represent the market value of equity. The following are the discounted cash flow methods:
The dividend discount model tries to find the present value of future dividends of a company to derive the present market value of equity.
This model is based on free cash flows of the company. Similar to the above model, it discounts the free future cash flows of the company to arrive at enterprise value. To find the value of equity, the value of debt is deducted from enterprise value.
Steps involved in Equity Valuation
In today’s business climate, constantly increasing competition, shifting profit margins, and rapidly changing technology have directed businesses to M&A as a faster way of growing. M&A means the combination of two or more companies, including their assets and debts, to become a single company. As a result of mergers, current companies may lose their legal entities and create a new company or combine with each other under the legal entity of one of the current companies. Sometimes, companies obtain a majority share of another company. The following are the methods of Merger and Acquisition Valuation:
Balance-sheet-based methods attempt to identify the value of a business by examining the balance-sheet values of their assets. This is a traditional approach dictating that the value of a business is determined considering the assets owned by that business, regardless of the future. Balance sheet-based methods comprise:
Book value: The book value of a business is calculated by subtracting the debts from the total value of the assets on the balance sheet.
Adjusted book value: The adjusted book value of a business can be calculated by identifying the market values of the assets in the balance sheet, and adding the values of the intangible assets which are not included in the balance sheet. This eliminates the negativities of book value to some extent.
Replacement-cost value: This value is calculated by considering the costs of obtaining assets that are similar in all ways to the assets in the balance sheet of the company. This method does not consider intangible assets either, which means that it is not a suitable method for M&As.
Liquidation value: The liquidation value is calculated by subtracting the debts from the value, which is created by selling all assets of the company. It is the lowest value that an establishment has.
Income Statement and Market-Based Methods:
In the income statement and market-based method, the value of the company is determined considering the income statement and market data, rather than the data on the balance sheet. The models are:
Market Price: The market price of a company is usually calculated considering the market prices of their shares. The market price of shares is a value that varies by supply and demand conditions on the market.
Earnings per Share: In M&A, the earnings/price ratio (E/P) is commonly used, particularly in the valuation of non-public companies, as it is easy to apply. The E/P for non-public companies is unknown because there is no market price for their shares. In these situations, the reference is the E/P of another company which is active in the same sector as the company to be valued, has similar characteristics, and is traded in the stock exchange.
Price/Sales Ratio: The price/sales ratio (P/S) method is similar to the E/P method. The P/S of a company similar to the establishment to be valued or the P/S of the sector is multiplied by the sales of the establishment in question. This method has disadvantages similar to the E/P method.
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The fundamental valuation in M&A is the Discounted Cash Flow Method (DCF), which is based on capital budgeting theory. The discounted-cash-flow approach in an M&A setting attempts to determine the value of the company by computing the present value of cash flows over the life of the company.
Steps to merger and acquisition valuation:
Property valuation is carried out for various purposes such as for insurance, payment of compensation for state acquired lands, taxation, rent/lease, sale and mortgages among others. It has been recognized over the years that property valuations for the various purposes are fraught with a lot of constraining factors, conditions and contradictions which often distort estimated values.
Sales Comparison Approach:
The sales comparison approach is the most frequently used method for determining the value of the residential real estate, although it is also suitable for valuing some types of commercial properties. Using this approach, the property’s value is based on what similar properties have sold for recently in the same market.
The cost approach starts by calculating how much the property would cost to rebuild, either as an exact replica of it or for the construction of a similar property with comparable features. The appraiser then deducts an amount for accrued depreciation, which represents the reduction in the value of the property over time as a result of obsolescence or wear and tear. The theory here is that no one would pay more for an existing property than it would cost to construct the same property from scratch.
This method uses the property’s rental income, or potential for income, to substantiate its market value. Apartment buildings and duplexes are examples of properties that you might value using the income approach.
Steps to property valuation:
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