Investment Valuation in India

Elementary valuation theories focus on dividends as the base for valuing equity shares. It represents the cash flow to the shareholders which is discounted to arrive at the value of shares. However, not all companies distribute dividends and we us other valuation methods to value shares of companies which do not distribute dividends. However, consider this. Dividend theories suggest that if the company believes that reinvesting dividends would lead to better shareholder wealth maximisation, dividends should not be distributed but should be reinvested instead. Accordingly, generally in emerging economies such as India, dividends have a much lower impact on valuation as companies prefer to reinvest the profits or distribute only a small part of the profits to shareholders. This leads to better capital appreciation for the investors and leads to higher valuation for the companies – particularly when the markets are ‘bullish’. Dividend Payout Policies are sensitive for the companies ...

A brief overview of Cash Flow Statement under IFRS along with implications for Indian entities under Ind AS. Courtesy: The Institute of Computer Accountants

Here's a brief overview of IAS 1 - Presentation of Financial Statements Courtesy: The Institute of Computer Accountants.

Apple Inc (NASDAQ:AAPL) beat its own record in highest market capitalisation by crossing USD 700 billion markon November 25th, 2014. The shares of the company recently touched USD 118 taking its market capitalisation to a new record high of USD 701 billion. It is already the largest company in the world by market capitalisation. The second largest company Exxon Mobil Corp (XOM) now trails at a market capitalisation of USD 405 billion. The company's CEO Tim Cook has continued to focussed on innovation just like Steve Jobs and has steered the company towards new highs. This has resulted in a 12.4% increase in revenues to USD 182 billion (ttm). Higher valuation for the company is also justified through its high Profit Margin of over 21% and a Return on Equity of 33.6% [Source: Yahoo Finance, 25-Nov-14]. At the product level, the markets have cheered the larger screen iPhones and slimmer iPads launched in September and October respectively. Competing with Samsung, Apple is plann...

Valuation of Goodwill Goodwill has been valued by accountants since ages especially during mergers and acquisitions. Although practically speaking, Value of Goodwill is the difference between the Actual Price paid for the business less the book value of the business. However, there have been some defined approaches to valuation of business by accountants. Goodwill is defined as the super profit earning capacity of the business. A simplified approach to valuation of goodwill is as follows: Goodwill = Super Profit x Number of Years’ Purchase Super Profit = Future Maintainable Profit – Normal Profit Future Maintainable Profit: The buyer of business (or goodwill for that matter) is usually interested in what the business will be able to sustain as profits in future. Accordingly we adjust the historical profits to arrive at future maintainable profits. Take the historical profits for the last few years (e.g. 5 years). Identify if there is a clear trend in profits ...

Here is a Sample Valuation Information Request form that can be sent to the management of the company being valued. This is used for companies who have asked you to value their own company for internal purposes. This can also be used for due diligence by management consultants. COMPANY NAME: VALUATION DATE: If you have any questions, please call at . NOTE:   This is a generalized information request. If the questions are not relevant for you, please mark N/A or let us know where we can get more information. A. Financial Information Financial statements for financial years ending 5 years. Quarterly financial statements for last 8 quarters. Financial projections, if any, for the current year and the next three years. Include any prepared budgets and/or business plans. Central and State Corporate Income Tax Returns and supporting schedules for last 5 financial years. Details of all ESOPs, Pensions, Employee benefit trusts. Explanation of significant no...

There are basically two methods for computing the market values of the future cash flows of risky investment projects - Certainty Equivalent Approach and Risk Adjusted Discount Rate (RADR) method. The RADR method obtains the discount rates from widely used theories of risk and return such as Capital Asset Pricing Model (CAPM) and is thus impractical when Betas of comparison firms are difficult to estimate. In such cases where comparison firms do not exist and risk is required to be estimated, practical considerations suggest that Certainty Equivalent Method is a better valuation tool. The Present Value formula under Certainty Equivalent Method is given by: PV = SUM(Expected Future Cash Flows) - Beta (Risk of Tangency portfolio - Risk Free Rate)                                                          (1+ Risk Free Rate)

In this series of videos I introduce how Revenue is recognised under International Financial Reporting Standards (IFRS). Courtesy: The Institute of Computer Accountants (www.icajobguarantee.com)

In this series of videos I introduce how Revenue is recognised under International Financial Reporting Standards (IFRS).  Courtesy: The Institute of Computer Accountants (www.icajobguarantee.com)

In this series of videos I introduce how Revenue is recognised under International Financial Reporting Standards (IFRS). Courtesy:  The Institute of Computer Accountants (www.icajobguarantee.com)

In this series of videos I introduce how Revenue is recognised under International Financial Reporting Standards (IFRS). Courtesy: The Institute of Computer Accountants (www.icajobguarantee.com)

While evaluating differences between accounting line items for Accounting and Valuation purposes, we do come across some Expenses which are treated as Operating Expenses from an Accounting perspective though they are often treated as Capital Expenses for Valuation purposes. Research & Development Expense (R&D) Expense is a common example where it is treated as Operating Expenses under most Accounting Rules (some rules allow Development Expenses to be capitalised with a lot of conditions attached to them), but for valuation purposes they are treated as Capital Expenses because the benefits of R&D are usually derived over a longer period of time. But what about Advertisement Expenses? Companies usually spend a lot of money acquiring customers by spending huge amount of money on Advertisement. Consumer Goods companies such as Unilever, Procter & Gamble (P&G) and beverage companies such as Coke and PepsiCo are known to be heavy spenders on advertisement to get cus...