Company Valuation

Everything we lay our eyes on has a value we assign to it. Be it the simplest thing you shop at the supermarket or a sophisticated entity you watch on the TV. This is valuation at the basic level. You may be dumbfound if I say that there are guys who make a career by projecting valuations in the finance world. Intrigued? Want to know why it is important and how its done? Having a realistic understanding of the value of your business or the value of your shares in a business is critical to your personal decision making and planning.

 

In this regard , you shall by enlightened by what the business icon Warren Buffet once said “If business schools could offer just one course, it would not be on stock trading, the efficient market hypothesis or modern portfolio theory. Rather B-Schools should be encouraging students to learn the boring, but critically important, discipline of business evaluation.” Business owners need valuation because:

  • Going about a sale process

  • Getting over shareholder disputes

  • Knowing about tax obligations

  • Aids decision making and hence proper planning

  • Knowledge about external funding sources

Knowing that a business valuation offers plenty of benefits for the company’s growth, it is also worth knowing what are the methods to measure how much a business is worth:

  • Asset Approach   : What will it cost to create other businesses like this that will provide the same economic benefits to its owners?

  • Market Approach  : What are other businesses worth that are similar to my business?

  • Income approach : If I am to invest time, money and effort into business ownership, what economic benefits and when will it provide me?

Therefore, it is an obvious fact that valuation is a matter of serious concern for an entrepreneur as he starts his business venture out in the global markets. It is one way in which the startup’s future income can be monitored and secured before it buds out into a large scale business.

Thus,valuation is essentially estimating the worth of an asset/company. For example, an analyst valuing a company may look at the company’s management, the composition of its capital structure , prospect of future earnings, and market value of assets. Judging the contributions of a company’s management would be more of a subjective valuation technique, while calculating its intrinsic value based on future earnings would be an objective technique. Below are the top 10 most valued businesses in India.

  • TCS

  • Reliance

  • ONGC

  • Coal India

  • ITC

  • Infosys

  • SBI

  • HDFC

  • NTPC

  • Bharti Airtel

— Sebin Mathew

ecellblogger

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