Equity Valuation, Valuation Certificate, Goodwill Valuation for Domestic & Foreign Companies
Valuation is the process of determining the current worth of an asset or a company; there are many techniques used to determine value. An analyst placing a value on a company looks at the company’s management, the composition of its capital structure, the prospect of future earnings and market value of assets.
Ezibiz India provides all types of VALUATION services to Indian Companies, multinational companies. We provide PAN India VALUATION Service
Meaning of Business Valuation or Valuation of Business
The process through which we determine economic value of business or company is called as Business valuation or Valuation of Business. It is also a process to determine current worth of business after examining all aspects of business like what kind of management is there, what its capital structure is, how much earning can be done by it in future and what the market value of its assets etc is.
Valuation of business or Business valuations are normally done in following circumstances:
- At the time of sale or entire business or portion of business or
- When company wants to merge or amalgamate with other business or company or
- When company wants to acquire another company or When company wants to make investment in another company
Types of Valuations
Valuation of shares or Share Valuation
The process of determining fair value or theoretical value of shares of any company is called as share valuation or valuation of shares. Valuation of shares are done on basis of some prescribed techniques and make use of accounting and financial data. Share valuation can be for valuation of equity shares or valuation of preference shares.
Some of the situations in which share valuation are required are as under:
- At time of investment in shares of Indian subsidiary company by foreign company.
- At time of transfer of shares in Indian company by Non Resident
- When there is merger or amalgamation or acquisition of business
- Conversion of shares from one class to another or from preference to equity etc
Valuation of Intangible Assets
Long live assets which are used in production of goods and services are called as Intangible assets. Normally owner of intangible assets develop it or acquires it. Also, it can be valued only when some economic benefits are generated to the owner from such intangibles like more visibility in market, increase in market share, savings in cost, increase in turnover etc. The owner of intangible assets can use the same in its own business or give it on frachisee for a royalty.
When we speak about valuation of intangible assets, it can be any of the following assets i.e
- Valuation of Goodwill
- Valuation of Brand
- Valuation of Trademark
- Valuation of Know-how
Any other intangible assets
Valuation of Immovable property
Valuation of immovable property can be any one of the following i.e Valuation of Plant and Machinery or Valuation of Building or Valuation of Land.
It means estimating or determining the fair price or value of property like building, factory, plant and machinery, land, or any other engineering structures etc.
With the help of valuation, we define the present value of property which is decided by sale price in market, rent it can produce or income it may generate.
Valuation of stock
Valuation of stock is also known as valuation of inventory. Valuation of stock or valuation of inventories requires special attention of accountants as well as auditors. In fact, inventory valuation also forms part of various reporting like CARO, Tax audit report etc. In India, fair value of inventories is determined keeping in view prescribed accounting standards, methods of valuation etc.
As per accounting standard 2, inventories shall be valued at lower of cost and net realizable value. Also, cost means all costs which are incurred in bringing the stock to their present condition and location i.e cost of purchase, costs of conversion and other costs etc. Net realisable value means how much amount an entity expect to generate from the sale of stock during ordinary course of business.
Requirement of Valuations under Companies Act 2016
Issue of new shares-Section 62 (1) (c)
Valuation is required in case any company proposes to issue new shares (accept a rights issue to existing shareholders or to employees under ESOPs)
Non cash transaction with directors-Section 192 (2)
In the case of sale or purchase of any asset involving a Co. and the directors of the Co. or a person connected with the Director for consideration other than cash.
Compromises, Arrangements and Amalgamations -Section 230 (2) & (3) and Section 232
Valuation is required in case of mergers or amalgamations or compromise with creditors (such as in corporate debt restructuring).
Purchase of minority shareholding- Section 236
In case of acquiring 90% or more of the equity capital in a company, minority shareholding may be acquired at a valuation determined by the Registered Value.
Winding up of a company- Section 281 (1) (a) and Section 305 (2) (d)
Valuation of assets of the company prepared by the Registered Valuer is required in case of winding up, voluntarily or otherwise.
Documents Required for Valuation
- Valuation means to determine what is current worth of an asset or company. Value may be determined by many techniques/methods like income approach, Cost approach, market approach etc depending upon type of valuations required to be done.
- The Cost Approach values intangible assets by accumulating costs that would currently be required to replace the asset.
- The Market Approach values intangible assets by using prices paid in actual transactions. The transaction price, as a ratio of an asset attribute, such as revenues that is observable in both the market transaction and the subject intangible asset are used to derive a market multiple.
- The income approach measures value by reference to the economic benefits expected to be received over the remaining useful economic life of the goodwill. This involves estimating the expected future, after-tax cash flows attributable to the brand then discounting them to a present value using an appropriate discount rate. Under the income approach, risks that are not already reflected in future cash flows must be considered in the discount rate.
The following persons will be eligible to apply for being registered as a valuer. For Financial Valuation – Chartered accountant, company secretary, cost accountant, retired member of Indian Corporate Law Service or any person holding equivalent Indian or foreign qualification as the Ministry of Corporate Affairs may recognize; and a Merchant Banker employing persons with above qualifications. For Technical Valuation – Members of Institution of Engineers (India), Institute of Architects etc.
- Registered Valuer would be appointed by Audit Committee and its absence by Board of Directors