How to Value your Business, True Networth?

Need to Value business stems from may reasons namely

  • Seeking funds as Investment
  • Lawsuits and Settling Litigation
  • Inheritance of Property
  • Certification for travel, education or specific purpose

Being a relative complex matter, often the common sense and basic key aspects help decide the variants for estimation

The 3 Widely accepted methods are as below

Market Based Asset Based Income Based
Value of similar business in competition Current Worth of the Assets belonging to the Co. Future Potential of Income @ Business
May or may not be on Projections No Forecast Required Forecast is Must

 

Market-based approach
With this method you:

  1. identify a similar firm (within same or similar industry, same business and markets)
    2. identify the valuation multiple for the business.
    3. Identify the appropriate variable and valuate.Some of the most popular multiples are:

 

  1. A) Price Earnings Multiple is calculated as Share price / Earnings per share (EPS)

EPS is net income/weighted average no of shares in issue

 

EPS may be adjusted to eliminate exceptional items (core EPS) and/or outstanding dilutive elements (fully diluted EPS)

 

Some of the key advantages are

  • Most commonly used equity multiple
  • Data availability is high

 

However, some of the cons are as

  • PS can be due to varying accounting policies and manipulation
  • Unless adjusted, one-off exceptional items does not give comparable valuation
  • Does not work, if earnings are negative

 

  1. Price to Sales ( p/s) is less complex , more linear and often does not require change due to capital restructuring
  2. Price to Book ( P/B) takes into consideration the book value of the company and here income is often directly proportional to Assets
  3. EV/EBITDA: EBITDA, or Earnings Before Interest, Taxes, Depreciation, and Amortisation is widely regarded by analysts as more reliable

It eliminates variation in capital structure, taxes , other income . Enterprise Value is the sum of Debt, Equity & cash balance & Ebidts is Earnings before Interest

START-UP, INCOME TAX, GST, BUSINESS, CA

Asset based approach
The Net Asset Value (NAV) is the easiest to understand. It is calculated simply as fair value of the assets of the business less the exterior liabilities owed. The key is deciding fair value, especially of assets since fair value may change significantly from acquisition value (for non-depreciating assets) and recorded value (for downgrading assets).

 

Also, the true value of your business may be significantly more than the simple addition of Possessions.. Things which you never taken care of may form part of the value, as would an unique way of doing business that gives your enterprise an benefit. An extension of NAV Method – the Replacement Cost Method – takes treatment of many of these issues. Set simply, it is the value any objective person would pay to arranged up a business that is precisely the same.

 

Income based approach
This method generally involves calculating the significance of the company using Cheaper Cashflow (DCF). In brief and very simply, this means calculating the present value of the future cash flows of the company. The discounting to provide value is done using the cost of capital of the company. Depending on goal, cash flows to the firm (that is, before debt obligations) or cash flows to shareholders may be used. It will create an Enterprise Value (value of financial debt + value of equity) and these Equity Worth.

 

With limited information, some of the key drivers are

 

  1. Data Availability
  2. Appropriateness of the method to the situation, industry, and the business
  3. Desired Level of Details as per Requirement

Valuation under multiple methods is average of final valuations to get more accurate figues

Principles of invariably, intuition, common sense, and acceptability will trump complexity, high math, and copious data for getting the TRUE NETWORTH.

Budget 2018

Budget 2018 – Expectations !!

The expectations are running high – what the Budget can or should deliver as it is the last full year Budget by the current government before May 2019 general election and post GST.

Budget 2018

Capital Market Response

 
Since 2010, the Sensex has gone up six times out of nine in the month after the Budget. Similarly, the benchmark index has also fallen eight out of nine times during the month prior to the Budget.

Though this time, we have not seen a significant correction ahead of the Budget, the chances of graph moving in the upside direction post Budget seems to be limited.

Receipts & Expenditure

  • FM Arun Jaitley has the unenviable task of balancing economic with politics. Fiscal deficit for FY18 could be 3.4% (below 3.5% for FY17) vs Budgeted 3.2% of GDP (a slippage of only 20 bps) due to higher divestment receipts and cutback in expenditure (mainly capital) offsetting the fall in GST collections and lower receipts from RBI.
  • Fiscal deficit for FY19 could be projected at 3.2% (thus being on the path to fiscal responsibility, though with some lag). For FY19, expenditure focus areas would be agriculture and housing.
  • In agriculture, the GoI would specialize in addressing the rural distress by subsidy mechanism wherever the market {price|market value|value} of crops fall below the minimum support price (MSP). Capex focus can be on irrigation, food provides chain, rural roads, and housing.

Common Man & General Business

On the taxes front, we have a tendency to expect to raise of exemption limits for people from ₹2.5 lacs presently to ₹3 lacs, company rate being cut to 25th for firms with annual sales up to ₹100 cr (vs ₹50 cr earlier), period of holding for LTCG being raised from this one year to 2 or 3 years, and no alternative major reliefs.

Budget 2018:  Lower corporate tax rate may  make all unhappy

Global Macros

If crude prices settle at $75+ in FY19 and/or GST collections do not grow robustly (leading to a further growth in GDP), then the stress on the fiscal deficit will become visible with its impact on inflation and interest rates.

Otherwise, CPI could hover @5% in H1CY18 and between 4 to 5% in H2CY18. The 10-year bond yields could remain in the 7.1-7.6% band for better part of CY18.

GST & Insolvency

Among indirect taxes, GST is the prerogative of the GST Council and hence apart from some policy direction, no changes in GST are expected out of the Budget. Some tinkering of import/export duty is possible.
GST collection growth and insolvency code progress are two major themes to follow in 2018.

Private consumption is expected to stay strong; 2018 monsoon could be a concern. Some populist giveaways are likely though without the major dent in the fiscal situation.

chartered accountant

Overall, we see fewer negatives from this Budget. Possibilities of an unexpected large positive are also limited.

No income tax!

No income tax: The most thrilling idea before every Budget

Ever since the NDA government came to power, there has been abuzz regarding termination of personal income tax. Right from BJP MP Subrahmanyan Swamy to Anil Bokil of Arthkranti, several have planned this radical move.

No Income Tax

Some, like economic expert Surjit Bhalla, has projected a flat tax. Since Prime Minister Narendra Modi demonetized high-currency notes—an plan propagated by Arthkranti—many believe he might implement another Arthkranti plan too, that’s termination of taxation.

Within the Budget 2018?

There is very little probability that minister of finance Arun Jaitley would select such a radical movement within the Budget. the govt. has already recognized a task force for redrafting the 50-year previous income tax law in sync with the economic wants of the country.

it’ll provide its report after 5 months.There are many arguments in favor of termination of income tax. India has not been able to expand the tax base. the personal taxation assortment as a proportion of the GDP has been around 2 percent within the previous few years, which is terribly low for an outsized country like India.

largely it is the middle-class salary earners who pay taxation honestly. whereas the poor do not pay taxes, the wealthy realize innovative ways that to avoid paying tax.

“India has been for the most part a tax non-compliant society”

An argument against termination of Income tax

If the govt. takes the daring step to finish income tax system, it’d have an effect on solely 2 percent of the population and would be less risky and a lot of politically remunerative as compared to changes like note ban and GST that affected each citizen. Another argument is that the termination of income tax won’t just result in revenue loss. it’ll also put cash in the hands of individuals which is able to increase demand and boost the economy.

Creation of additional jobs

It may result in additional savings.An advantage of termination of income tax is that the govt. will use its gigantic tax bureaucracy to focus more on alternative taxes like GST and tracing the black money. Another profit can be the creation of additional jobs because it will bring down wages and encourage corporations to rent more workers.Banking sector may gain from this move. With no black cash, folks can keep most of their cash in banks rather than finding ways that to cover it. this can boost bank deposits and disposal. As advised by Anil Bokil’s Arthakranti, the govt. will they even introduce a nominal banking dealing tax?

Abolition of taxation may be a low-hanging fruit for the govt. It may be a big democrat move before many state elections this year and also the Lok Sabha elections next year.

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