VALUATION OF A

BUSINESS ENTERPRISE
BY REKHAA J. BISHT
MBA IIND YEAR (FINANCE)
 INTRODUCTION
 Corporate valuation of a business enterprise is a very
essential aspect of Strategic Financial Management.
 There are various key reasons for valuation of a
business enterprise, such as amalgamation or merger
with another enterprise, issue of shares, partial or full
privatization, sales of few assets etc.
 There are various approaches used for corporate
valuation like the Marakon Approach, Alcar Approach,
BCG Approach, etc
 Major Reasons for Valuation
 Amalgamation or merger with another enterprise.
 Closure and sale of assets due to liquidation or other
reasons.
 Assessment of fund raising capacity and required
rating by lenders.
 Issue of shares.
 Partial or full privatization.
 The enterprise’s own internal exercise for the
knowledge of owners and top executives.
 Group restructuring exercise leading to mergers and
de-mergers inside the group.
 Cont.
 Strategic alliances and joint ventures with domestic and
international partners.
 Sale of a few assets, brands and other claims.
 Governmental requirements for taxation, securitization
etc.
 Rehabilitation of a sick or dying enterprise. Significant
change is to be made in the value-chain, knowing the
independent strength of various value-drivers
contributing to the value-chain of the enterprise.
 Converting key employees into entrepreneurial
employees and then into equal partners in the
enterprise.
 Cont.
 Valuation of goodwill for its presentation in the
Balance Sheet or for charging royalty to dealers,
representatives, group-members etc.
 Partial valuation of certain divisions and product lines,
for partial restructuring.
 Steps in Valuation Process
 Engagement of an expert
 Research and data gathering
 Analysis and estimate of value
 Reporting process
 Analysis and Estimate of Value
 The process of valuation can be said to comprise the
following steps:
 Deciding on the business valuation method to be used.
 Analyzing the company information in conjunction with
the industry and comparable company data.
 Normalization of Financial Statements.
 The most common normalization adjustments fall into the
following four categories:
1. Comparability Adjustments
2. Non-operating Adjustments
3. Non-recurring Adjustments
4. Discriminatory Adjustments