VALUATION
CONCEPTS
A N D M ET H O D S
MODULE OBJECTIVE
1. Discuss the importance of valuation
2. Discuss why people needs to apply
valuation techniques
3. Identify the appropriate valuation
techniques
F U N DA M E N TA L S P R I N C I P L E S
1. Assets have value from another person's point of
view
2. Value varies depending on asset type
3. Businesses aim to maximize shareholder value
[Link] estimates asset value using future returns,
comparisons, or liquidation
[Link] judgment is key in valuation
K EY P R I N C I P L E S O F B U S I N E S S VA L UAT I O N
[Link] only at a specific point in time
[Link] by the capacity to generate future cash flows
[Link] market commands what the proper rate of return for investors
[Link] be impacted by underlying net tangible assets
[Link] by transferability of future cash flows
[Link] is impacted by liquidity
DIFFERENT CONCEPTS OF VALUE
1. Intrinsic Value - estimated 'true' value based on available facts
2. Going Concern Value - value assuming firm continues operations
3. Liquidation Value - value if assets sold individually
4. Fair Market Value - price between willing buyer and seller at
arm's length
ROLES OF VALUATION
[Link] Management
[Link] of Business Transaction/Deals
[Link] Finance
[Link] and Tax Purposes
[Link] Purposes
ROLES OF VALUATION
Portfolio Management
Portfolio management is choosing and managing
investments to meet financial goals. It involves balancing
risk and return by diversifying assets like stocks and
bonds. Managers optimize performance by analyzing
markets and adapting to changes.
ROLES OF VALUATION
Portfolio Management
passive Active
Active
Investors
Investors Investors
Investors
Investors seeking Individuals who
consistent growth actively manage their
through low-effort investments, frequently
strategies, such as buying and selling
investing in index funds, assets to achieve
mutual funds, or UITFs. higher returns.
D I F F E R E N T I N V E ST O R S
1. Fundamental Analyst - evaluates the intrinsic value of investments.
2. Activist Investors -look for companies with good growth prospects
but have poor management
3. Chartist - influenced by how investors think and act
ROLES OF VALUATION
In Portfolio Management - valuation can be used for:
Stock
Stock Deducing market
market
Selections
Selections Expectations
Expectations
figuring out what the
evaluating a company's financial market assumes about
health and market prospects to
a companys future
decide if its stock price is fair, too
based on its current
low, or too high, helping investors
make informed choices. stock price
TYPE OF FINANCIAL ANALYST
THAT HELPS IN VALUATION
A sell-side analyst provides investment research and recommendations to clients,
such as advising to buy or sell specific stocks; for example, they might recommend
buying shares of a tech company due to projected growth.
A buy-side analyst conducts research and provides investment recommendations
for the firm's own portfolio, rather than for outside clients, such as analyzing
stocks for a mutual fund portfolio.
ROLES OF VALUATION
Analysis of Business Transactions/Deals
Valuation is essential for analyzing business
transactions. It determines a company's or asset's
worth, helping assess if a deal is fair. By evaluating
financial performance, market conditions, and growth
potential, valuation supports informed decision-
making and better negotiation.
TYPES OF BUSINESS DEALS
IN CORPORATE EVENTS
1. Acquisition - one company buys anaother
2. Merger - two companies merge into new one
3. Divestiture - a company sells off part of its business
4. Spin-off- a company creates a new company from its unit
5. Leveraged Buyout - buying a company using borrowed money
FACTORS CONSIDERED IN
BUSINESS DEALS ANALYSIS
Synergy in business deals means the added value when two companies join forces.
For example, a tech company merging with a software firm may boost products
and cut costs, or a retail chain acquiring a logistics company can improve
distribution.
Control is a key factor in buainess deals because owning a majority lets you make
decisions. The valie of a company can change wether the buyer gets control or
minority stake
ROLES OF VALUATION
Corporate Finance
Valuation is essential in corporate finance, especially for
firms offering stock publicly to raise funds or secure loans.
It determines a company's or asset's worth by examining
financial performance, market conditions, and growth
prospects. This process ensures fair deals and supports
informed decisions and effective negotiation strategies.
ROLES OF VALUATION
Legal and Tax Purposes
Valuation is crucial for understanding buy-ins or sell-outs
in partnerships, as well as for liquidation purposes and
estate tax considerations. It determines a business's or
asset's worth by analyzing financial performance, market
conditions, and future prospects. This ensures fair asset
distribution and informs legal and tax decisions.
ROLES OF VALUATION
Other Purposes
Fairness opinion
Lending Assessments
Share-based payments/compensations
THANK
YOU
A T A A N A L Y S IS
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