ADJUSTED NET ASSET METHOD OF VALUATION

Continuation of previous post- METHODOLOGIES OF VALUATION : ASSET BASED METHOD

For Calculating the Adjusted NAV, the valuer should factor in the contingent liability, Tax Shield on accumulated losses, impact of Auditor qualification and Due Diligence, money to be received from warrants, stock options and impact of corresponding shares.

Book Value Method

This form of valuation is based on the books of a business, where owners' equity i.e. total assets minus total liabilities are used to set a price. There are a couple of problems with this simplified method. First, unless you audit the business' books, you cannot be certain that the numbers presented are correct. Secondly, the value of some assets, such as buildings, equipment and furniture/fixtures, may be overstated in the books, and may not reflect the maintenance and/or replacement costs for older assets. As a result, most business valuation experts prefer to use an adjusted book value.

METHODOLOGIES OF VALUATION : ASSET BASED METHOD (NAV)

The asset based method views the business as a set of assets and liabilities that are used as building blocks to construct the picture of business value. Since every operating business has assets and liabilities, a natural way to address this question is to determine the value of these assets and liabilities. The difference is the business value.

However, the Net Asset Value reflected in books do not usually include intangible assets and earning potential of the business and are also impacted by accounting policies which may be discretionary at times.

BUSINESS VALUATION

Valuation is more on an art based on the professional experience of the valuer rather than a science based on empirical studies and logics. Though internationally business valuations are governed by broadly various standards like: Valuation Standards of American Institute of CPAs (AICPA), American Society of Appraisers (ASA), Institute of Business Appraisers (IBA), National Association of Certified Valuation Analysts (NACVA), The Canadian Institute of Chartered Business Valuators (CICBV), Revenue Ruling 59- 60 (USA), ICAI Valuation Standard (recommendatory) however keeping in view the growing relevance and importance of valuation in business and investment decisions as well as in regulatory compliance processes the development of practice of valuation as a discipline and profession in the present context has become a necessity because of imperatives of financial markets, emerging global economy, and changing framework of accounting and financial reporting.