Introduction to Valuation

Valuation is...is important. Like anywhere... where people are investing money or taking out money. They need to value and understand that what kind of money they're going to get. Or what kind of return they're gonna get. So evaluation comes at 2 stages. Whenever you're entering into a company that is where you value a company and find out the price... And when you're exiting. And again, you find out what is the kind of return you're getting. So it's.. valuation is simple like...how a stock market works. That is also a valuation but that is visible valuation. There are... there are ways where you value a non listed company and... ultimately it's all about the money.  So how much return you get. I will say there are traditional evaluations which used to happen where it was basically for investments. Uh...And...For regulatory purpose like... There are regulations where FEMA or someone outside India was investing into a company. Then there are FEMA (Foreign Exchange Management Act)...Regulations related to those where you have to get certain benchmark prices below which you can't value. Or you can't put in money. So those are traditional, conventional valuation practices.  Nowadays, there are a lot of different valuation practices coming in which is like, dispute valuation (family dispute) or company dispute valuation where you need to value each of the businesses seperately. That's an offshoot in valuation. There are valuations that are related to non-listed companies hunting for investemnts for growth and everything. Again, there are intangible valuations. Intangible has a huge market potential because of what the brand value is, what the patent value is... These are actually required after a company's purchase. Lets say FlipKart acquires SnapDeal. Now to account for the value of SnapDeal in FlipKart's books they'll break-up their assets and say the name SnapDeal - The brand is valued this much So lets say SnapDeal is valued at 1 billion as in that's what they wanted from FlipKart. So if the deal happened at 1 billion - what is the break-up of 1 billion? That is called purchase price allocation. So you purchase SnapDeal at 1 billion and then you break SnapDeal into brand value, customer relationships.. The web portal can be valued which is an intangible. Ugh...brand SnapDeal can be valued. Again, vendor relations can be valued. So those are all intangible valuations. Uh...primarily again, those are accounted in the books and in income tax uh...so goodwill is then valued. Based on whether your asset is...your uh...fixed assets are created, based on which depreciation, amount transaction is recieved. So from income tax point of view these are all big valuation numbers and the income tax officers do get into those valuations. So that is an offshoot or new valuation that the changing industry...IND-AS (Indian Accounting Standard) - the new accounting standard that India has come up with. So accounting standard wants valuation every year for the assets that they have. So every year now the books have accounts will be fair valued so that actual picture of valuation comes up and now.. The historical cost - So if I purchase land or a brand at 100 rupees. After 15 years also the land is not going to cost 100 rupees. It's going to be like, 2500 rupees. So your book should actually give up those numbers and not historical cost So those are new types of valuation assignments that's coming up.  A classic case would be the dispute between the Ambani brothers. They had one business empire. Now they wanted to split, so how're the businessess going to split? Listed companies, everyone knows what was the value of the listed companies but what about the numerous unlisted companies that they had? Which brother will get what? And if they're divided equally between both the brothers - the Ambanis, then ehat is the value of each unlisted company and how will they be seperated so that each will get 50% of the total empire?So that is dispute in business.