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Valuation is not an exact science and is driven, inter alia, by the purpose of valuation, statutory
requirements, business factors, etc.
The prominent Dictionaries define the term value in the following manner:
Cambridge
• the amount of money that can be received for something
• the importance or worth of something for someone
• how useful or important something is
• to give a judgment about how much money something might be sold for
Collins
• The value of something is how much money it is worth
• When experts value something, they decide how much money it is worth
• You use value in certain expressions to say whether something is worth the money that it costs.
Merriam-Webster
• the monetary worth of something
• a fair return or equivalent in goods, services, or money for
something exchanged
• relative worth, utility, or importance
January 4, 2019 rajkumar@competentvaluation.com 7
Meaning of Value
While Value has some other meaning as well, but in our
context value may be understood as worth associated
with anything.
Value may be of different kinds namely Book value
Depreciated value, Going concern value, Liquidation or
break up value, Intrinsic value, Fair value etc.
Prominent Dictionaries has defined the term “value” as:
• As per Oxford Dictionary - The material or monetary
worth of something.
• As per Cambridge Dictionary - the amount of money that
can be received for something
Investment Book
Value Value
• The value of
any product or
service for a
individual
refers
perceived
Liquidation Fair market utility or use of
Value value the product or
service for that
particular
individual.
Scrap
Intrinsic value
Value
January 4, 2019 rajkumar@competentvaluation.com 9
Valuation - Purpose
• Portfolio Management
• Valuation in Acquisition Analysis
• Valuation in Corporate Finance
• Valuation for Legal and Tax Purposes
• Property Valuation
• Valuation of Shares of Company
• Stock Valuation
PREMISE OF VALUATION:
Determination of
Data cleansing and
Developing the valuation appropriate valuation
validation to create an
framework techniques and
Asset Listing
strategies
Management review
Production of
of results and
valuation reports
assumptions
With-or-
Reproduction
without
Cost Method
Method
Greenfield Summation
Method Method
If a valuer contravenes the provisions of this section or the rules made thereunder, the valuer
shall be punishable with fine which shall not be less than twenty-five thousand rupees but
which may extend to one lakh rupees:
Provided that if the valuer has contravened such provisions with the intention to defraud the
company or its members, he shall be punishable with imprisonment for a term which may
extend to one year and with fine which shall not be less than one lakh rupees but which may
extend to five lakh rupees.
• 21 Rules
• 4 Annexures
• 5 Forms
• W.e.f October 18, 2017
• Central Government shall notify and may modify (from time
to time) the valuation standards on the recommendations of
the Committee constituted under the rules.
• Transitional Period under Rule 11 has been extended upto
September 30, 2018.(amendment made on 9th feb 2018)
• 'specified discipline' shall mean the specific discipline which is relevant for valuation of an asset
class for which the registration as a valuer or recognition as a registered valuers organisation is
sought under these rules.
• Qualifying education and experience and examination or training for various asset classes, is given
in an indicative manner in Annexure-IV of the rules.
The registered valuer may obtain inputs for his valuation report or get
a separate valuation for an asset class conducted from another
registered valuer, in which case he shall fully disclose the details of the
inputs and the particulars etc. of the other registered valuer in his
report and the liabilities against the resultant valuation, irrespective of
the nature of inputs or valuation by the other registered valuer, shall
remain of the first mentioned registered valuer.
a. Macro Economics- 4
National Income Accounting
Basics of Fiscal Policy
Basics of Monetary Policy
Understanding Business cycles
b. Finance 3
Basic Concepts of Finance
Decisions in Finance
Financial Markets and Securities Markets
c. Professional Ethics and Standards 5
Model Code of Conduct as notified by MCA
Other Engagement Considerations
d. Financial Statement Analysis 3
Assets, Liabilities, Income and Expenses
Performance Analysis, Capital Structure Analysis
Credit Analysis
Cash Flow Analysis
f Overview of Valuation 5
Meaning of Value
Premise of Valuation
Purpose of Valuation
Valuation Engagements
Valuation Process
Valuation Report
- Documentation
h Valuation Application 33
• Equity / Business Valuation
Analysis of Business Environment
Entity’s Business Strategy Analysis
Business Combination- Amalgamation, Merger,
Demerger, Arrangement & Restructuring
Forecasting
Cash flow Analysis
Appropriate Cost of Capital / Rate of Return
Valuation Adjustments
• Fixed Income Securities
Types of Fixed Income Securities
Types of Different Debt Instruments
Terms used in Fixed Income Securities
Credit Rating of Bonds
Embedded Options
Interest Rate Derivative Products
Related FIMMDA Circulars
h • Option Valuation
General Principles
Option Valuation Models – Black and Scholes
Valuation Methodology, Black and Scholes
Merton Option Pricing Method
Binomial Tree Method, Monte Carlo Simulation
• Valuation of other Financial Assets and
Liabilities
• Intangible Assets
Nature and Classification of Intangibles
Identification of Nature of Intangible Assets
Purpose of Intangibles Valuation
Valuation Approaches
• Valuation Application: Situation Specific
Valuation
Business Combination – Amalgamation,
Merger,
Demerger, Arrangement & Restructuring
Distressed Asset Valuation
Start-up Entities Valuation
Valuation of Small and Medium Enterprises
Valuation of Cyclical Firms
Valuation of Investment Entities
Valuation for Insurance Coverage
January 4, 2019 rajkumar@competentvaluation.com 36
Syllabus of Valuation Examination- Asset Class- Securities Or
Financial Assets Cont….
j. Case Studies (This section will have 2 case studies for application of 14
valuation techniques. There will be two comprehensions narrating the
transaction based on which questions will be asked from each case.)
Total 100
• Equation of Exchange = MV = PT
Where, M= the amount of money
V = Velocity
P = Price
T = Transactions
When M, V, P and T are changing, then,
%∆𝑀 + %∆𝑉 = %∆𝑃 + %∆𝑇
Where, Δ means “change in”
1. Capital Budgeting
1. Payback period method
2. Accounting rate of return method
3. Net present value method
4. Internal rate of return
5. Profitability Index
2. Time value of money
3. Cost of capital
4. Working Capital Management
January 4, 2019 rajkumar@competentvaluation.com 46
Finance – Financial & Securities/Capital Markets
FMC is merged with SEBI on 28th sept 2015
• The chance of an heir-apparent succeeding to an estate, the chance of a relation obtaining a legacy on the death of a kinsman, or any
other mere possibility of a like nature, cannot be transferred.
• A mere right of re-entry for breach of a condition subsequent cannot be transferred to anyone except the owner of the property
affected thereby.
• An easement cannot be transferred apart from the dominant heritage.
• An interest in property restricted in its enjoyment to the owner personally cannot be transferred by him.
• A right to future maintenance, in whatsoever manner arising, secured or determined, cannot be transferred.
• A mere right to sue cannot be transferred.
• A public office cannot be transferred, nor can the salary of a public officer, whether before or after it has become payable.
• Stipends allowed to military, naval, air-force and civil pensioners of the government and political pensions cannot be transferred.
• No transfer can be made (1) insofar as it is opposed to the nature of the interest affected thereby, or (2) for an unlawful object or
consideration within the meaning of section 23 of the Indian Contract Act, 1872 (9 of 1872), or (3) to a person legally disqualified to
be transferee.
• Nothing in this section shall be deemed to authorise a tenant having an untransferable right of occupancy, the farmer of an estate in
respect of which default has been made in paying revenue, or the lessee of an estate, under the management of a Court of Wards, to
assign his interest as such tenant, farmer or lessee.
• Stamp duties on documents specified in Entry 91 of the Union List (viz. Bills of Exchange, cheques, promissory notes, bills of
lading, letters of credit, policies of insurance, transfer of shares, debentures, proxies and receipts) are levied by the Union. Under
Article 268, State, in which the Stamp duty is collected, retains the proceeds except in the case of Union Territories in which case
the proceeds form part of the Consolidated Fund of India. At present duty is levied on all these documents except cheques.
• Stamp duties on documents other than those mentioned above are levied and collected by the States by virtue of the legislative
entry 63 in the State List in the 7th Schedule of the Constitution;
• Provisions other than those relating to rates of duty (which fall within the scope of Entry 91 of the Union List and entry 63 of the
State List mentioned above) fall within the legislative power of both the Union and the States under Entry 44 of the Concurrent
List in the 7th Schedule which reads as under - "44 Stamp duties other than duties or fees collected by means of judicial stamps,
but not including rates of stamp duty"
The Indian Stamp Act, 1899 prevailing as on date is the Stamp Act at Union Level which came into force on January 27, 1899. For
State Matters, every state has different stamp laws in the country.
The Legislation is divided into 8 chapters, 78 Sections (Section 79 stands repealed) and 2 Schedules (where second schedule Stands
repealed).
Assessing
Observing
the
Forecasting Environment
the
Scanning & conditions
Searching
Collection of Information
necessary
information
Business Strategies
– An entity’s working plan
– For achieving its vision Growth
– Prioritising its objectives
– Competing successfully
– Optimising financial performance Competition
– With its current business model
Sustainability
• General Principles:
1. Current value of the underlying asset
2. Expected volatility in the value of the underlying assets
3. Strike price of the option
4. Expiration time of option
5. Rate of interest
6. Income from underlying asset
Income • Technology
• Customer related intangibles
Approach • Tradenames/Brands
• Non-competition agreements
• MASTER MIND
• DEFINITE CHIEF AIM
• SELF CONFIDENCE
• HABIT OF SAVING
• INITIATIVE AND LEADERSHIP
• IMAGINATION
• ENTHUSIASM
• SELF CONTROL
Cont…