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Valuation Concepts and Methods: Nstructional Aterials
Valuation Concepts and Methods: Nstructional Aterials
METHODS
INSTRUCTIONAL MATERIALS
HERBERT C. BARON
ANDREW TIMOTHY L. CACHERO
MARVIN V. LASCANO
LUZVIMINDA S. PAYONGAYONG
MARIA LUISA U. OLIVEROS
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Module 1 Introduction on Valuation Concepts
and Methods
Overview:
economy of today. Value is all about how much something is worth, whether in an
Therefore, knowing how to measure value or how to create value is an essential tool
for everybody to be able to make a decision, wise decisions.
Module Objectives:
After successful completion of this module, you should be able to:
Course Materials:
Foundations of value
market in the economy of today. Value is all about how much something is worth,
whether in an estimate or exact amount. When somebody invest, they expect the
sufficient enough to compensate the risk or sacrifice they took, incorporating the
time value of money. As we say, in everything we do, we need to sacrifice. That
sacrifice has value, giving away something that is valuable to him expecting
another value, the return or profits he is willing to accept given the value of his
sacrifice.
Definition of valuation
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Valuation is the analytical (quantitative) process of determing the current
or projected worth (value) of an asset or something. There are several techniques
or methods available to be used in doing valuation. Each of these methods may
give different results or value, what matter is how this will be used in the decisions
why such valuation activity is being done.
a good or healthy return on invested capital (ROIC) and by its ability to grow.
Healthy rates of return and growth result in high cash flows, the ultimate source of
value. Discussions on this will be done in detail in the topic, step by step process
of valuation.
Concepts of valuation
Objectives/uses of valuation
Importance/Rationale of valuation
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Business valuation is an important exercise since it can help in improving
the company. Here are some of the reasons why is there a need to perform a
business valuation.
Although the goal of valuation is to determine the fair market value, there
is no one way to be certain of the ultimate price paid. Typically, it depends on many
factors including industry, sector, valuation method and the economic conditions.
You can also count on a fact, you can have your business valued by two
professionals and you will come up with two different answers
Litigation
based on the actual worth of your businesses and not inflated figures estimated
by a lawyer.
A valuation with annual updates will keep the business ready for
unexpected and expected sale. It will also ensure that you have correct
information on the company fair market value and prevent capital loss due to
lack of clarity or inaccuracies.
Buying a business
Selling a business
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Strategic planning
The true value of assets may not necessarily be reflected on the assets
schedule, and if there has been no adjustment of the balance sheet for various
possible changes, it may be risky. Having a current valuation of the business
will give you good information that will help you make better business
decisions. As in the financial reporting standards, the use of current value
accounting is more evident.
Funding
The following are the key principles of business valuation that business
owners who want to create value in their business must know.
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valuation principle helps business owners to understand the significance of the
date of valuation in the process of business valuation.
except in in unusual situations where net asset liquidation may lead to a higher
value.
predicting the future results of the business under certain conditions. Another
account capital investments, working capital changes, and taxes, is the true
determinant of business value. Business owners should aim at building a
comprehensive estimate of future cash flows for their companies. Even though
making estimates is a subjective undertaking, it is vital that the value of the
business is validated. Reliable historical information will help in supporting the
assumptions that the forecasts will use.
The market commands what the proper rate of return for investors
Market forces are usually in a state of flux, and they guide the rate of
return that is needed by potential buyers in a particular marketplace. Market
forces include the type of industry, financial costs, and the general economic
conditions. Market rates of return offer significant benchmark indicators at a
specific point in time. They influence the rates of return wanted by investors
over the long term. Business owners need to be wary or concerned of the
market forces in order to know the right time to exit that will maximize value.
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relationships, etc., then the owner will secure the goodwill and not the
business. Such a kind of personal goodwill provides very little or no commercial
value and is not transferable.
owner does not want to stay. Business owners need to build a strong
management team so that the business is capable of running efficiently even
if they left the company for a long period of time. They can build a stronger and
better management team through enhanced corporate alignment, training, and
even through hiring.
Read:
Activities/Assessments:
1.
Use diagrams, if needed:
a. Why we need to value value?
b. Why valuation matters to business people?
c. Why do people perform valuations?
d. How and when to apply valuation principles?
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