Not all investors are same - the stronger the preferences assigned to any investor, the lower would be the value of the common equity shareholders. For Example: if the company has raised INR 10 cr. funds by issuing Cumulative Convertible Preference shares (Preferred Shares) which gives investor 20% shareholding in the company on fully dilutive basis, it would not be reasonable to assume that all the shares of the Company have equal rights and hence the equity value of the company is INR 50 cr. In practice, the value of such preferred share is significantly higher than each of the remaining common equity shares. The resultant impact is that the equity value of the company would be significantly lower say at INR 40 cr. and so would be the value per common equity share.
Besides valuation of Sweat Equity for Accounting and Tax purposes another Valuation is required to assess the value of Technical Know How or IPR or Value Additions attributable to the efforts of such person. The accurate quantification of the intangible gains made by the Company consequent to the contribution of a person is difficult to be ascertained in absolute numerical terms and involves careful consideration and review of various parameters that directly and / or indirectly contribute to business expansion with consequent accretion in value.
The start up valuation is more about understanding the future potential of the business, based on the uniqueness of the business model, promoters specialization and background, market pulse and the chances of success and failure attached. Once the valuer understands the factors effecting the start up , like the key value drivers, valuer may be able to value it on a more concrete terms. Though there are scientific methods to value a start up, but the art of the valuer play a dominant role.
"Valuation is more on an art based on the professional experience of the valuer rather than a science based on empirical studies and logics. Though Internationally Business Valuations are governed by broadly various standards like: Valuation Standards of American Institute of CPAs (AICPA), American Society of Appraisers (ASA), Institute of Business Appraisers (IBA), National Association of Certified Valuation Analysts (NACVA), ...
"Brand valuation is not considered as a mainstream practice, but instead a niche. There are traditional methods available to measure the value of business, but to value the Brand categorically there is a need to understand the modern ways which includes measuring various attributes of brand like clarity , Protection, Commitment, Responsiveness, Authenticity, Relevance, Differentiation, Consistency, presence ...
"The key role of the valuer is to remove the biasness and subjectivity in the valuation process and find the fair value of the business based on science, logic, empirical studies, case law and last but not the least the professional experience of the Valuer on an objective basis. ...
" ESOP Valuation (both for Accounting of “Compensation Expense” by company and for perquisite Tax payable by the employees) plays a significant role in the success of any ESOP scheme"
"The new rules would see an attempt to provide more flexibility to investors involved in the deal and focused towards commercial aspect of transactions. It is interesting to see how new rules would be framed. In our view, valuation approach and method should be kept open to suit the market, company and transaction. " ...
"In case the valuer has been involved in valuing any part of the subject matter of valuation in the past, the past valuation report(s) should be attached and referred to herein. In case a different basis has been adopted for valuation (than adopted in the past), the valuer should justify the reason for such differences"
"It has been observed that the Valuation trend in the high growth segment of IT industry (E-Commerce & Social Networking) is on an upswing and though there exist limited public listed companies in this segment, majorly all trade at very high valuation multiples with corresponding high volatility owing to their sensitive business models, prone to competition with new technology and recent developments. Where would their Valuations be stabilized would be decided in times to come."
"Enterprise Value is the overall value of any business which represents all stakeholders and often looked at while acquiring/ selling any business or making any strategic decision and is dependent on the Value of the company, its subsidiaries and the Value of surplus assets. All the above issues are relevant for working out EV."
"Discounted cash flow method is one of the important finance tools to derive value of a company based on the future cash flows of business. However it is needed to be used with great care as it’s a very sensitive model where the values get affected significantly with a small change in assumption like Beta value, Terminal growth rate, Risk free rate of Return and market return. It is also recommended to do a sanity check with the Market Approach to valuation like CCM and Asset Approach i.e. Net Asset Value before concluding the value"
"It’s been generally observed that valuer’s apply a holding company discount in the range of 40 to 60% on the NAV of its holding companies. But adjustments should be made to the discount depending on the dividends paid and received by the holding company and also expected future scenario of the company. The type of investments the holding company holds also has an impact on the discount that should be applicable for holding company in question. It may also be stated that ReOrganization of Holding Company may also result in Value Creation. "
"A key benefit of Relative Valuation analysis is that the methodology is based on the current market stock price. The current stock price is generally viewed as one of the best valuation metrics because markets are considered somewhat efficient. But applying multiples is not a straight forward technique and many considerations have to be kept in mind when valuing a company. Sanity check is advised by using other valuation methods as well."