A STUDY OF CORPORATE VALUATION

RESEARCH PROPOSAL

INTRODUCTION OF TOPIC

The process of finding the value of a business involves evaluating all aspects of the
business and using objective measures. Company valuation usually includes the
analysis of the management, capital structure, market value of its assets, or the future
earnings prospects of the company.

In case you haven’t had your company’s valuation assessed over the last 12 months, it
is vital that you have it done. A company’s valuation offers the owner with the actual
facts and figures that show the value of a business in terms of its income, assets, and
market competition.

This is the information that every company should have with them, and they should
check it annually to see the growth of the company from year to year.

Not sure why this is something important? Well, that is what this article is all about,
letting you know the ins and outs of the company valuation process.

The corporate finance theories and practices have evolved since the 50’s from
normative to positive approaches to explain why and how investors react to
companies’ decisions and announcements with respect to companies’ financial and
investment decisions. The way and methods used to estimate companies’ value are
essential issues in corporate finance. Several events during the last years have
changed the validity of the models and methods of corporate valuations. The case of
enron is one of these events that make us reevaluate the classical and neoclassical
methods. The aim of this article is to discuss the current corporate valuation methods.

In considering the financial valuation models, the second section deals with the most
basic levels of valuation that include discounted cash flow models, under these types
the models of value the company is simply the net present value of some measure of
future cash flow. To link between market risk and equity returns the capital asset
pricing model (CAPM) and arbitrage pricing models (APM) are frequently used in
corporate valuation.

A variety of investment decisions can add value to companies. The third section
discusses the basic investment models that include a neo-classical model of
investment. This type of model relates the desired capital stock to interest rates,
output, and capital asset cost and tax policies. Tobin’s q, sales accelerator and cash
flow models of investment are measures used explain the relation between investment
and companies’ value. The weighted cost of capital (WACC) concept is also used to
explain how the value of a company to its shareholders can be manipulated by
changing the proportion used among alternative methods of financing investment
projects.

In case you haven’t had your company’s valuation assesse78d over the last 12
months, it is vital that you have it done. A company’s valuation offers the owner with
the actual facts and figures that show the value of a business in terms of its income,
assets, and market competition.

This is the information that every company should have with them, and they should
check it annually to see the growth of the company from year to year.

Not sure why this is something important? Well, that is what this article is all about,
letting you know the ins and outs of the company valuation process.

METHODS OF VALUATION

 MARKET CAPITALIZATION
 TIMES REVENUE
 EARNINGS MULTIPLER
 DISCOUNTED CASH FLOW (DCF)
 BOOK VALUE
 LIQUIDATION VALUE
OBJECTIVES
1. The objective of the study is to value the company based on its past performance.

2. Arriving the conclusion that value of the company’s share on stock exchange is
overvalued or undervalued or correctly valued.

3. Studying the relevancy of method of corporate valuation with regarding to take

investment decision in stock market.

4. To asses the goodwill of the concern.

5. To asses the correct financial position of the concern.

6. To enquire about the mode of investment of the capital of the concern.

HYPOTHESIS
1. Ho= There is no significant of the company based on its past performance.

2. Ho= There is no correctly valued in company’s share on stock exchange.

3. Ho= There is no method regarding to take investment decision in stock market.

4. Ho= There is no asses the goodwill of the concern.

5. Ho= There is no correct financial position of the concern.

RESEARCH DESIGN
Research design in the framework of conducting research for a project. It specifies all
the details of procedures necessary for obtaining processing and analyzing the
information needed to exactly define the research problem and to solve that research
problem. Research design can be described as a general plan about what you will do
to the answer the research question.

Types of research design

1. Exploratory design

2. Conclusive research design

a. Descriptive design

b. Causal design

DATA COLLECTION METHOD

1. Primary data collection method

The primary data are the first hand data, collected by the researcher for the first time
and is original in nature. The researcher collects the fresh data when the research
problem is unique, and no related research work is done by any other person.

2. Secondary data collection method

When the data collected by someone else for a purpose other than the researcher’s
current project and has already undergone the statistical analysis is called as
secondary data.

This report contains secondary data for research.

SAMPLE SIZE AND SAMPLING DESIGN

1. SAMPLE SIZE

For this report top two companies are selected on the bases of weights of that
company in the index of that particular sector and data is collected for last two years
from audited consolidated financial statements of particular company. There are five
popular sectors on random basis.

1. IT SECTOR

2. BANKING SECTOR

3. AUTO SECTOR

4. PHARMA SECTOR
5. FMCG SECTOR

2. SAMPLING DESIGN

Sampling design is a definite plan for obtaining a sample from a given population.

Two types of sampling design;

A) Non probability sampling techniques

B) Probability sampling techniques

In this report, the non-probability convenience sampling design has been used.

BENEFITS / ADVANTAGES
1. This study helps investors to find out correct value of company based on its book
value or past performance.

2. This study also helps in taking investment decisions.

3. This study is helps in clearing the concept valuation.

4. This study can also help in determining resale value of company.

5. Valuation model fit with microeconmic theory.

6. Valuation model are historically “traceable”.

LIMITATIONS / DISADVANTAGES
1. This study ignores the future estimates of cash flows and growth of the company.

2. Comparison of current price with the price of last two years, hence there may
possibilities of some legs due to timing difference.

3. Details in DCF give an illusion of accuracy whereas those models can be extremely
sensitive thus not accurate at all.
4. At the end buyers estimate that the value of a firm is defined at specific moment in
a specific market situation. It will be a different value regarding different macro-
economic.

FUTURE SCOPE
1. For technical valuation-it is done by the technical valuer. Movable and immovable
property valuation process are the key areas in this.

2. for financial valuation- it is conducted by the financial valuer. The key areas of
valuation process include goodwill, stocks, shares, debentures, winding up,
compromise, arrangement, liquidation, securities, restructuring and corporate debt.