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CORPORATE VALUATION AND VALUE BASED MANAGEMENT

SAMEERA SHAIKH SAGAR BHANUSHALI


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Introduction: Value maximization is the central theme in financial management. Owners of corporate securities will hold management responsible if they fail to enhance the value.. The goal of such appraisal is to estimate fair market value of the company. The valuation of business requires a expert knowledge . Value of business depends upon the risk profile of the business it carries and intangible asset it posses. it
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Valuation Concept
Valuation of enterprise indicates the net asset as shown in the book of account

Net asset valuation is the difference between the asset and liabilities based on their balance sheet values.

Equity value is sometimes called as the market value of the company.


Value per share = Share holders equity No. of shares outstanding.

Value of company = Value per share X no of equity share outstanding.

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Value of the company = market price per share X no of

Methods of valuation

Dividend yield method

Value per share = Dividend per Share X Nominal value of Share Average Dividend in Industry(per share) Value of Business = Value per Equity share X No of Equity shares. Earning yield Method Value of business = Companies expected future maintainable profit Industries normal earning yield
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Price Earning Method

Value of Share = Earning per Share X Price Earning Ratio EPS = Profit available for Equity Share holder Number of Equity shares PE Ratio = Market Price per Share Earning per Share

Return on Capital Employed

Value of Business = Estimated future maintainable Profit Industry Normal Rate on Return of Capital Employed
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Discounted Valuation Models The discounted valuation models are based on the assumption that a company is worth as much as the net present value of the cash flows generated by the compnany for distribution among the shareholders. There are two DCF models used:
1.

Dividend Discount Model(DDM): Dividend Discount Model estimates the value of equity shares based on the view that the value of equity equals all future dividend discounted back today.

Model can be divided into three parts:


a)

Zero Growth Model: It assumes that dividend4/10/12 constant over time and hence will be

b)

Value of share: V = D1 (K - g) Where, V = Intrinsic Value D0 = Current Dividend D1 = Dividend in the next year K = Required rate of return g = Growth rate
c)

Constant Growth Models: In this model, the dividend are expected to grow at constant rate in future.so dividend expected next year is equal to D1 0 (1+ G).
= D

2)

Multiple Growth Model: In this method value of companies share by using multiple growth model V = VT + Vt Discounted Cash Flow Method: DCF technique is properly used to evaluate viability of an investment proposal. In this case the future incremental cash flows are forecasted and discounted into present value by applying cost of capital rate .The present value indicates the value of an enterprise.

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Concept of Value Addition Value added is the wealth created by the company, and its employees efforts which comprises of salaries, wages, interes, dividend, taxes and depreciation and net profit retained in the business. Value added is defined as the increase in the market value resulting from alteration in the form, location, or availability of a product or services excluded the cost of goods and services purchased from outside.

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Economic Value Added(EVA): Any surplus generated from operating activities over and above the cost of capital is termed as economic value added. Thus EVA is defined as Excess profit of a firm after charging cost of capital. Market Value Added(MVA): Market Value added is the market value of the capital employed in the firm less the book value of capital employed. It is calculated by summing up the paid up value of equity and preference share capital, retained earning, short term and long term debt and subtracting this total from the market value of equity and debt.
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