FAQs on Business Valuation

  • What is Business Valuation?

    Business valuation is the process of determining the economic value of a business or company. It depends upon the purpose of Valuation, Stage of Business, Past Financials, Expected financial results, industry scenario and various other allied factors.Valuation is a factor of negotiation between the investee and investor. Valuation cant looked upon as a standalone process.

  • Why a Valuation is conducted?

    A business valuation may be required for various purposes like:

    • Investments
    • Implementation of Employee Stock Option Scheme
    • Merger & Acquisitions / Business Sales
    • Buy-Sell and Shareholder Agreements
    • Issue of Shares at a Premium
    • Acquiring financial assistance from Banks and Financial Institutions
    • Exit of Shareholders
    • Sale or Transfer of Shares at a Premium
    • Issue of Sweat Equity Shares
    • In case of a scheme of compromise or arrangement with creditors or members
    • Sale of minority shareholding
    • Submission of report by company liquidator
    • Declaration of solvency in case of proposal to wind up voluntarily
  • Who can conduct a Valuation?

    Business Valuation can be conducted only by a Registered Valuer.

  • Who are categorized as Registered Valuer?

    Registered Valuer’ means a person registered as a Valuer under Chapter XVII of the Companies Act.

  • Who can apply as Registered Valuers?

    The following persons are termed as Registered Valuer:

    • A chartered accountant, company secretary or cost accountant who is in whole-time practice, or retired member of Indian Corporate Law Service or any Indian Citizen holding equivalent Indian or foreign qualification as the Ministry  of Corporate Affairs may by an order recognize.
    • A Merchant Banker registered with SEBI and having in his employment persons having qualifications as mentioned above to carry out valuation services by such qualified persons
    • A member of the Institute of Engineers and who is in whole-time practice
    • A member of the Institute of Architects and who is in whole-time practice
  • What are the methods of Valuation?

    Basically there are two valuation approaches and a dozen Valuation Model. The two valuation approaches are:

    • Intrinsic Valuation Approach: IV of asset is determined by the cash flows that the asset is expected to generate over its life period.
    • Relative Valuation Approach: Assets are valued on the basis of relative pricing mechanism of similar asset present in the market and thereby performing a comparative analysis.
  • What are the methods of Valuation prescribed by the Income Tax Act?

    As per Income Tax Act, shares have to be valued either at Book Value or as per Discounted Free Cash Flow method.

  • What are the factors that are to be considered for Business Valuation?

    The factors to be considered for Valuation depend upon the purpose for which the valuation is conducted. Generally, the following factors are taken into consideration while valuation of the business:

    • Nature of the business and the history of the enterprise from its inception
    • Economic outlook in general and outlook of the specific industry in particular
    • Book value of the stock and the financial condition of the business
    • Earning capacity of the company
    • Dividend paying capacity of the company
    •  Goodwill or other intangible value
    • Sales of the stock and the size of the block of stock to be valued
    • Market prices of stock of corporations engaged in the same or a similar line of business
    • Contingent liabilities or substantial legal issues, within India or abroad, impacting the business
    • Nature of instrument proposed to be issued, and nature of transaction contemplated by the parties
  • What are the benefits I receive by having my business appraised?

    To put it simple and short-you get to know the “real market worth” of your business. Consequently, you are in a much better positions to plan the future direction of the business. Estate and tax planning also require a business valuation.

  • Can my Chartered Accountant value my business?

    Chartered Accountants can value businesses, but most accountants do not focus on valuations. Further, since a traditional CA is often more involved in managing the day to day affairs of the company, they generally lack the necessary training to produce an accurate analysis. Hence, it is always advisable to opt for such a firm which has specialized departments and expert professionals for catering to this requirement. Many businesses and professionals have used our valuation models for successful pitching of their business plans and securing Investments or regulatory shields.

  • My business huge losses last financial year. Does this mean it does not have any value?

    Not at all. Business valuation is more of a futuristic method. An appraiser normalizes the financial statements to reflect the current/future worth of the business on the basis of a working average figure.

  • How long does it take to prepare a Valuation Report?

    Once we receive the necessary information regarding your business, we will complete the valuation and return it to you in 5 business days.