Business Valuations (1) Flashcards
What is a takeover?
Acquisition by a company of a controlling interest in voting share capital of another company, usually achieved by purchase of majority of voting shares
What is market capitalisation?
The total value of all shares in a company
When is an estimate of valuation of share required?
If an investor is considering purchase or sale of a share
When is an independent share valuation required?
If company is unquoted
If stock market does not value shares accurately
Value of the company being bought changes management
Max of a business valuation?
Value the cash flows or earnings (often under new ownership)
Medium of a business valuation?
Value the dividends (often under existing management)
Minimum of a business valuation?
Value assets using net book value or realisable value approaches
What does the net asset value approach normally represent?
The minimum amount that shareholders will accept if they are selling the business
When are asset valuation methods most useful?
if a business derives most its value from its assets, or it is trying to establish the lowest price that it would fund acceptable for its shares
Ways net assets value (NAV) approach can involve valuation of assets?
Historic basis
Realisable asset values
Replacement costs
What are the net assets
Non-current assets
Current assets
- all liabilities
Are intangible assets ignored in historic basis?
Yes
How to calculate historic basis?
Value of net assets / Number of shares
What are the realisable asset values?
Same working as historic basis but adjusts the book value of the asset to reflect their market value ub the most accurate way of assessing net asset value in event of a liquidation
If a potential buyer of a company can estimate the replacement cost of the assets of the target company?
It can estimate the maximum it should pay for the target company
