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Business Valuations

SRCA Business Valuation

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. The rapid globalization of the world economy has created both opportunities and challenges for organizations leading to uncertainty blowing across global markets and raising the importance of independent valuations all over the world. Justifying the value of businesses has grown more complex and challenging as valuation as its been accepted that valuation is not an exact science and depends upon a number of factors like purpose, stage of business, past financials, industry scenario, management and promoters strengths etc.

Valuation is more an art based on professional experience of the valuer rather than a science based on empirical studies and logics. Business Valuation is the process of determining the "Economic Worth" of a company based on its Business Model under certain assumptions and limiting condition and subject to data available on the valuation date.

It is an important concept in corporate finance and business management. Supposing a business is for sale, how does one know what is the real value that business is worth? More basically, how does a business owner know the net value of his business, or how is valuing a business for sale accomplished?

What is Business Valuation?

Company Valuation or Business Valuation, is the process by which the economic value of a business, whether a large or small business is calculated. The purpose of knowing the business’s value is to find the intrinsic value of the entire company – its value from an objective perspective. Valuations are mostly used by investors, business owners, and intermediaries such as investment bankers, who are seeking to accurately value the company’s equity for some form of investment.

SRCA Business Valaution

Download International Valuation Standards

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All rights reserved, subject to permission having been granted to the Financial Reporting Council to reproduce the International Valuation Standards within The Bangladesh Financial Reporting Act 2015.

Areas where valuation is used

Valuation is an important aspect in M& A. It not only assists business owners in determining the value of their business, but also help them maximize value when considering a sale, merger, acquisition, joint venture, or strategic partnership.

When dealing with banks or any other prospective investor, you frequently require an impartial and independent evaluation of the business. An official report of your company’s value is frequently required in order for lenders to have faith in your business’s worth.

In general, when a new company goes for an Initial Public Offering (IPO), it is doing that in order to generate capital for growing its business. In such a circumstance, a question arises as to how to evaluate the fair value of such a stock. The Indian Capital Market follows a free pricing regime and thus the accurate pricing of an IPO is of immense importance.

One of a company’s most important aspects of an exit plan is its value. Cash flow estimates and an initial company valuation are essential to help business owners understand their financial standing when it’s time to exit.

When selling your business to a third party, you must ensure that you get the best possible price. But the asking price must still be attractive to potential purchasers.

Succession to family members: In planning for the transfer of family business to the next generation.
Succession to employees: for many closely held businesses, the sale of the business to one or more key employees is often a viable succession strategy.
Succession to outside parties: It comprises of mergers, acquisitions, purchase and sale of businesses.

Valuations are an increasingly important aspect of many commercial disputes. Before deciding how to manage a dispute, it is necessary to determine the likelihood of a successful outcome and the potential stake involved. Judicial precedents are also available that affect the selection of Valuation methodologies and applicability of discounts/ premiums.

At times, the management wants to know the true value and fair value of the business for which they undertake the exercise of voluntary assessment for internal management purpose and future decision making.