Valuation of Business
Business valuation is a process and a set of procedures used to estimate the economic value of an owner's interest in a business. Valuation is used by financial market participants to determine the price they are willing to pay or receive to affect a sale of a business.
There are many reasons to determine the value of a business. Knowing what a business is worth is necessary when you are:
• buying a business
• selling a business
• selling a share in a business
• getting a business loan
• attracting investors
• Valuing your own net worth.
Valuation of Goodwill
When one company buys another company, the purchasing company may pay more for the acquired company than the fair market value of its net identifiable assets (tangible assets plus identifiable intangibles, net of any liabilities assumed by the purchaser). The amount by which the purchase price exceeds the fair value of the net identifiable assets is recorded as an asset of the acquiring company.
Valuation of Shares
In the cases of shares quoted in the recognised Stock Exchanges, the prices quoted in the Stock Exchanges are generally taken as the basis of valuation of those shares.
Need and Purpose of Valuation of Shares
The need for valuation of shares may be felt by any company in the following circumstances:
1. For assessment of Wealth Tax, Estate Duty, Gift Tax, etc.
2. Amalgamations, absorptions, etc.
3. For converting one class of shares to another class.
4. Advancing loans on the security of shares.
