Valuing unlisted shares can be a challenging task, as there is no market price available for such equities. In this article, we will explore five different approaches that can be used for the valuation of unlisted shares in India.
Book Value Approach
This approach considers the physical assets and liabilities of a company to determine its value. The book value is calculated by subtracting all tangible liabilities from tangible assets. To use this method, assets and liabilities must be revalued annually, and the assets must have a fair value.
Method of Last Transaction Price
This approach determines the value of unlisted shares based on the price at which the business last received money. While this method is not always accurate, institutional investors are considered wise, and their transactions can provide insight into the value of these businesses.
Discounted Cash Flow Method or Price-to-Earnings Ratio
One of the most popular techniques for valuing unlisted shares, this approach is suitable for companies with strong business operations. Future cash flows are estimated based on existing earnings, and a discount rate is applied to these potential cash flows.
Value of Net Assets (NAV) Including Goodwill
The NAV approach is based on the current market price of assets and liabilities. This approach differs from the book value method in that it uses current market prices instead of historical prices. Goodwill is considered an asset in this method.
Value of Net Assets (NAV) Excluding Goodwill
This approach is similar to the previous one, but it does not consider goodwill and intangible assets and liabilities. Only tangible assets and liabilities with current market values are included in the calculation of NAV.
we offer a range of valuation services for unlisted companies, including the following:
Business Valuation: This is a comprehensive valuation of the company’s business, taking into account various factors such as the company’s financials, future prospects, industry trends, and market conditions.
Equity Valuation: This valuation focuses on determining the fair value of the company’s equity shares, taking into account the company’s financials, growth prospects, and other relevant factors.
Intangible Asset Valuation: This valuation is used to determine the fair value of intangible assets such as patents, trademarks, copyrights, and goodwill.
Financial Modeling: This is a quantitative analysis of the company’s financial data to predict future performance and estimate the company’s value based on these predictions.
Due Diligence: This involves a detailed examination of the company’s financials, legal records, and other relevant documents to identify any potential risks or issues that may impact the company’s valuation.
Benefits of Valuation Services for Unlisted Companies
Valuation services for unlisted companies offer various benefits to stakeholders such as investors, promoters, and creditors. These benefits include the following:
Accurate Valuation: Professional valuation firms use advanced techniques and methodologies to determine the fair value of unlisted companies, ensuring accurate and reliable valuations.
Transparency: Valuation reports provide stakeholders with transparent and objective information about the company’s value, helping them make informed decisions.
Compliance: Valuation services for unlisted companies help stakeholders comply with various regulatory requirements such as tax laws, accounting standards, and financial reporting requirements.
Risk Management: Valuation services help stakeholders identify potential risks and issues that may impact the company’s value, enabling them to take proactive measures to manage these risks.
