PRELIM
REQUIREMENTS
IN
ELECTIVE3
MARCO, KRISTYNE B. BSA3
Determining the value of something is necessary to let others know how worthy it
should be. Just like assets and investments, it has value and can be valued depending
on the case situations. Valuation is important because it determines the economic value
of a business or business unit. Furthermore, knowing an accurate value for your business
will impact not only your current financial well-being, but also future exit strategies.
Since valuation may vary on a case to case basis, there are many different
techniques to be used to arrive at the correct value of the company. Valuation Techniques
like Comparable Company Analysis, Discounted Cash Flow Analysis, Precedent
Transaction Analysis, and Leverage Buyout Analysis. Each technique is a best technique
depending on what point of view of an individual focuses. Comparable company analysis
is best to use when a minority (small, or non-controlling) stake in a company is being
acquired or a new issuance of equity is being considered. Discounted cash flow analysis
is best to use also when the company wants to know company’s worth is equal to the
current value of the cash it will generate in the future. Some may also consider DCF as
the most theoretically correct of all of the valuation methods because it is the most
precise. Next, the precedent transaction analysis is best to use when trying to attempt to
ascertain the difference between the values of the comparable companies acquired in the
past and after the transaction. Lastly, Leverage buyout analysis is best to use to those
who are looking companies to acquire inexpensively in the hope that they can be sold at
a profit in several years.
On the other hand, value chain is an activities involved in the creation of product
or performing a service from the procurement to distribution. This value chain comes with
two (2) activities; the primary activities and secondary activities. Primary Activities are
those that go directly into the creation of a product or the execution of a service, which
include the inbound logistics, operations, outbound logistics, marketing and sales, and
the after sale services. The secondary activities are those activities who support the
primary one, which include the procurement, technological development, human
resources management and infrastructure.
Furthermore, the asset-based valuation refer in giving value to the assets that has
been defined by the industry as transaction that would yield future economic benefit as a
result of past transactions, meaning the value of the investment opportunities is highly
dependent on the value that the asset will generate from now until the future. The
valuation of asset comes with different methods; Book value method, Replacement value
method, Reproduction value method, and Liquidation value method. Book Value method
consider the historical or acquisition value of the asset, or defined as the value recorded
in the accounting records in a company. As to Replacement Value method, the value of
the individual assets shall be adjusted to reflect the relative value or cost equivalent to
replace that asset, and this method is affected by this three (3) factors such as the age of
the asset, size of the asset and the competitive advantage of the asset.
Next,
Reproduction Value method is an estimate of cost of reproducing, creating, developing or
manufacturing a similar asset. This method is useful when calculating the value of new
or start-up businesses. Lastly, the Liquidation Value method is an equity approach that
consider the salvage value as the value of the asset, and this method also provide the
most conservative value of the asset.