Knowing what business is worth and what determines its value is prerequisite for intelligent decision making. Corporate valuations form the basis of corporate finance activity including capital raising, M&A and also to meet regulatory / accounting requirements or for voluntary purpose. Justifying the value of businesses has grown more complex and challenging as it’s been accepted that valuation is not an exact science and depends upon a number of factors like purpose, stage, financials, industry, management and promoters strengths etc. Professional experience of valuer has a big role in choosing and applying out of different methodologies and concluding value.
As of now there are no formal standards for business valuation in India (barring ICAI Valuation Standard which too is recommendatory) specifically for unlisted and private companies, numerous conceptual controversies still remain, even among the most prominent valuation practitioners. Interestingly, the answer to this lies in focusing more on basics of valuations.