Investment Valuation in India

In its drive to improve the ease of doing business, The Companies (Amendment) Act 2015 has made some sweeping changes. One of such change is the omission of minimum capital requirement for starting a business in company form. The requirement of having a minimum paid up share capital has been done away with. Going forward, a Private Company would not be required to have a paid up share capital of Rs 1 Lakh. Accordingly, a Public Company would not be required to have a paid up share capital of Rs 5 Lakh.

Employee Stock Option Plans (ESOPs) also known as Equity Incentive Plans is one the commonly used compensation tools by companies. Organisations offer ESOPs to their employees as part retention strategies. Some of the other key drivers for implementing ESOPs are wealth creation for employees, enabling high performance, and instilling a feeling of ownership for the organization amongst employees. What is ESOP? An ESOP is a right to buy shares of the employer company at a pre-determined price. Organisations often grant their key employees an option under the plan that confers a right, but not an obligation, on the employee to buy the shares of their company. Stock options are subject to vesting, requiring continued service (and sometimes performance) over a specified period of time. Upon vesting of options, employees can exercise them to get shares, by paying the pre-determined exercise price. ESOPs can be an important tool for both attracting and retaining good talent in ...

I often come across students and training participants who regret that they can't remember the things they are studying or things that have been discussed during the training. This article appeared on LinkedIn. Read Full Article here

There are various constraints that we come across while making investment decisions. Some of them are: Liquidity:  Liquidity constraints refer to the need of the investor to convert quickly into cash at a price that is closer to the fair market value of the investment. Usually, if an investor purchases a long term asset such as real estate, these are termed as illiquid assets as it usually takes longer to sell such assets and get cash. In case of immediate need for cash, one may have to sell such illiquid assets at an unfavourable price. On the other hand, marketable securities such as Money Market Funds are termed as liquid assets which can be sold and converted into cash almost any time. Investment Horizon: Investment Horizon (also known as Time Horizon) refers to the planned time between making an investment and redeeming such investments. A person (e.g. at the age of 25) would usually have a longer investment horizon if he plans to investment for retirement, daughter's...

Here are some valuation updates that have been reported in the global media. Stripe Payments services startup Stripe, founded by brothers Patrick and John Collison has taken another round of funding from Visa. The companies enables the apps and online stores to take payments from anybody, anywhere. It works with online companies that accepts payments through Credit cards while being totally invisible to end users. Visa has bought a stake in Stripe that values the company at $5 Billion and will leverage on Stripe's technical expertise to work on new kinds of digital payments. This is at a time when Visa is facing competition from organisations which are more mobile friendly when it comes to digital payments. On the other hand, Stripe will leverage on Visa's security systems to protect the users' financial information.   

Valuation Ratios help us value a company in the simplest manner. This method of valuing companies is also called Relative Valuation. A valuation ratio is a measure of how cheap or expensive a security (or business) is, compared to some measure of profit or value. A valuation ratio is calculated by dividing a measure of price by a measure of value, or vice-versa. The point of a valuation ratio is to compare the cost of a security (or a company, or a business) to the benefits of owning it. The most widely used valuation ratio is the PE ratio which compares the cost of a share to the profits made for shareholders per share. The EV/EBITDA compares price to profits, but in a somewhat more complex manner. It compares the cost of buying the businesses of a company free of debt, to profits. Because someone buying a company free of debt would no longer have to pay interest, the profit measure used changes to profit before interest. It is also adjusted for non-cash items. Price...

A bond carries a specific rate of interest which is also called the Coupon Rate. For example, if the Face Value of the bond is Rs 100 and the bond is issued at 8% coupon rate, the Interest would be calculated on the Face Value of the bond. That is, annual interest would be Rs 100 x 8% = Rs 8 per annum. Generally, the bonds may be issued or traded at a Par (Face Value), at a premium or at a discount to Face Value. Interest paid would be tax deductible for the issuer.