How to Calculate the value of Shares for Business sale? - Professionals - Accounting - TIK Share

How to Calculate the value of Shares for Business sale?


CA Pulkit Sharma

2013-08-03

In case of listed companies the value of share is determined by market force. The demand and Supply in stock market determines the value of share of a company. However in case of deals which are executed privately and not through stock market, value is determined by certain methods.

In most of the cases the valuation of shares is done by one method, valuation is done by considering the average of values arrived with different methods.

Price of a share = (Price as per method 1 + Price as per method 2,3…….)/Number of methods x Desired years*.

Net Assets Valuation method

In this method the value of share is determined by dividing the net assets of company by number of equity share. Net Assets are the Total Adjusted Assets of the company minus total adjusted outside liabilities.

Future Cash Flow Discounted Method

This is the most accurate method to calculate the value of share and is used by most of the time for valuation. Steps to calculate the value of shares are

  • Future Revenue is estimated from past data and future business environment. Revenue is estimated for around 5-10 years.
  • Once Revenue is estimated, the future operating and other expenses are estimated based on past data and future business environment.
  • Net profit of each year is calculated based on the estimated amounts.
  • Non case expenses are added to profit to arrive at cash profit for each year.
  • Extra-ordinary incomes and expenses are adjusted for current year.
  • The future cash profit of each year is discounted.
  • The total discounted cash flow of each year is totaled and divided by number of equity shares.
  • Value of each share is calculated dividing the total cash flow by number of equity shares.

An example of calculation of Net Discounted Cash flow

PARTICULARS

2013

2014(Estimated)

2015(Estimated)

2016(Estimated)

2017(Estimated)

Revenue

100

110

121

133

146

Expenses

40

44

48.4

53.2

58.4

Depreciation and Provisions

10

9

8

7

6

Extra-ordinary Loss

15

-

-

-

-

Profit

35

57

64.6

72.8

81.6

Add: Non-Cash Expenses and Extra ordinary Income

25

9

8

7

6

Net Cash Flow

60

66

72.6

79.8

87.6

Discounting Rate

-

10%

10%

10%

10%

Discounted Cash flow

60

60

60

59.95

59.83

Total Cash Flow

299.78

 

 

 

 

Amounts in Lakhs and above example is only for information purpose and should not be considered for professional use as it is general in nature and does not relate to any specific business environment.

 

Other Methods

 

Other methods are like Future Net Profit, Based on Revenue, Based on Gross Assets, Based on Business condition, Based on only Brand valuation or mix of all methods.

For further specification clarification, post you question in Forum.

Mukesh Jain CA

2013-08-04

 

Net Asset value method

The assets like land & buildings, investments etc can be valued at fair market value. Further intangible assets like goodwill can also be valued based on accepted method of valuations.

Discounting of future cash flows

It can be done based on discounting factor ie., cost of equity (Ke). Ke is determined based on the following formulae:

  1. Ke= DPS for next year    + Growth rate

                MPS for current year

      2. Ke= Risk free rate of Return (Rf)+ (Beta * Equity risk Premium)

I request all the users to kindly make any further additions to the above points.

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Mukesh Jain CA

2013-08-04

The details / information required for the VAT registration in karnataka is as under:

  1. PAN card of the Company or the firm or the proprietor
  2. PAN card of all the directors, Person in charge or Manager.

3.  Rental agreement, electricity bill of the location of the place of business.

4.  NOC from the owner of the premises (If required).

5.  Incorporation certificate of the company.

6.  MOA, AOA of the company.

7.  Photos of all the directors, partners, Proprietor.

8.  Address proof of all the directors, person in charge or the partners or the proprietor as the case may be.

9.  Bank a/c details of the company or the firm or the proprietor.

 The above are the minimum documents which needs to be filed at the time of the registration. There may be some additional documents which may be required depending upon case to case basis.

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