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Mainly 4 techniques to value businesses # Net Asset Valuation # Dividend Valuation Model # P/E Ratio (Earnings based) # NPV Net asset valuation simply looks at the net assets on the balance sheet of the company being valued. If the company looking to takeover the business is intending to asset strip it then book values are ignored, instead they use realisable values. Otherwise if a going concern, non-monetary items will be valued at replacement costs & monetary items at book values. For any business this valuation should be used to acertain the minimum value to be paid for the business Dividend Valuation Model is based on the equation below P0 = d0(1+g) / (Ke- g) We know that the share price is simply the present value of the future dividend payments discounted at the cost of equity. The above equation simply uses this where d is the dividend paid now, g is growth rate, Ke is cost of equity (i.e. shareholders expectations - required rate of return) The equation can be re written as P0 = d1 / (Ke- g) as a perpetuity of the future income d1 There are some issues with this model # Assumption of a constant dividend each year # Growth rate consistent & constant # Ke assumed not to change P/E Ratio - Earnings based is dependent on the P/E ratio of the business. The P/E ratio of any business signifies 3 things # Status # Prospects # Risk Price/Earning Ratio = Share Price/EPS where EPS is the earning per share EPS = Earnings/number of ordinary shares The model looks at the product of P/E ratio and earnings for the Business to determine its valuation say for example A Co P/E ratio is 15 & are forecasted earnings are £150m then, Value of A is 15*150 = 2250m This really gives us the market capitalisation of the company Issues - Main issue is whether P/E is reliable & accurate. An under performing business with excellent future prospects will be undervalued using this method Net Present Value is the best method for business valuations. This is the present value of future cash flows discounted at the WACC (hence takes into consideration both the cost of equity & debt)
What else can I help you with?
Which inventory valuation method assigns a value to the inventory on the balance sheet that approximates current cost and also mimics the actual flow of goods for most businesses?
fifo
What is VAT inc?
Value Added Tax Included (in the overall price) Most businesses are exempt from VAT so sometimes the price is given Excluding VAT. VAT is currently 15%
What does letters VAT stand for?
VAT stands for Value Added Tax. It is a consumption tax levied on the value added to goods and services at each stage of production or distribution. Businesses collect VAT on behalf of the government and pass it on to the consumer, which ultimately impacts the final price paid for products and services.
Why opening stock appear in trial balance?
Opening stock is the value of goods on hand at the start of a year, and is an asset. So it needs to be listed in the balance sheet. Many small businesses do not maintain a accurate listing of the value of their stock throughout the year, so the opening stock value remains there until a new estimate or count is made of the stock at the end of the year. This then becomes the 'opening stock' value for next year, and so forth.
What is a cash float?
Cash float is a term used to describe a bank account that is set up to specifically float money from one business to another business. The purpose of this is to enhance the perceived value of one of the businesses.
How interest rate affect business?
Interest rates affect the value of money. Businesses depend on money. So when money has a higher value, businesses are happy. When money has a lower value, businesses are not so happy.
How can interest rate affect business?
Interest rates affect the value of money. Businesses depend on money. So when money has a higher value, businesses are happy. When money has a lower value, businesses are not so happy.
How does values affect the business processes?
Value helps businesses attract customers. The more value businesses add to their products, the more their products will sell in the market.
Is value maximization always ethical?
No value maximization isn't always ethical. If it costs businesses more to add value to products and it jeopardizes whether the product will be purchase, than it is not ethical, since businesses have a duty to stockholders.
How does increase in value of pounds affects aggregate demand?
how does increase in value of pounds affects sterling affect american businesses?
What businesses use CRM systems?
Many businesses can benefit from the use of CRM systems. In general, these businesses can be broken into five vague groups. The first group of businesses would be any business with a sales team, the second group would be any business that utilizes marketing practices. Another group is a business needs to generate quotes and/or invoices, a fourth group would be businesses who value their customers as a priority. Lastly, the fifth general group would be businesses that value efficiency.
What is the role of cost accounting in marketing of businesses?
cost accounting play a vital role in marketing businesses because it give the authentic value of the cost of goods and services.
How do businesses utilize the concept of time value of money to make strategic financial decisions and maximize profitability?
Businesses use the concept of time value of money to make decisions about when to invest money and how to allocate resources in order to maximize profits. By understanding the value of money over time, businesses can make strategic financial decisions such as investing in projects that offer the highest return on investment and managing cash flow effectively. This helps businesses make informed choices that can lead to increased profitability in the long run.
Why do many US businesses keep closed on Sundays?
It is a reflection of a common value to rest on the Sabbath.
What is the synergy effect of merger?
synergy effect of mergers means when two businesses merge together than the value or the income of the merged business will be more than that of the individual businesses. It is not just the combined earnings or value of the individual businesses rather the earnings and value increases because the loopholes of one is overcome by the strong areas of other. This disproportionate increase in value is called synergy. Ex: production person combines with marketing person works wonder. co. A intends to take Co. B, so here value synergy can be indicated as: NPVab =Vab-(Va+Vb) NPVab=Value synergy Vab= Value of merged firm Va=Value of co. A Vb=Value of co. B
What is the effect of merger?
synergy effect of mergers means when two businesses merge together than the value or the income of the merged business will be more than that of the individual businesses. It is not just the combined earnings or value of the individual businesses rather the earnings and value increases because the loopholes of one is overcome by the strong areas of other. This disproportionate increase in value is called synergy. Ex: production person combines with marketing person works wonder. co. A intends to take Co. B, so here value synergy can be indicated as: NPVab =Vab-(Va+Vb) NPVab=Value synergy Vab= Value of merged firm Va=Value of co. A Vb=Value of co. B
How a company quantify the value of strategic supply relationship management?
Successful businesses must be able to place value on strategic supply and relationship management. Balancing both, will lead to a successful business. Learning from other successful businesses will make this more clear.
