BUSINESS FINANCE II (İŞLETME FİNANSI II) - (İNGİLİZCE) Dersi Mergers and Acquisitions soru detayı:
SORU:
What are the valuation approaches?
CEVAP: Valuation approaches can be grouped in three categories of income-based, market-based, and asset-based valuation.
1. Income-based valuation: Income-based valuation focuses on finding the fair value of the company, depending on the future cash flows. The key of income-based valuation is future cash flows that a company will generate. The value of a company then, is the sum of present value of its future net cash flows. Calculation of future cash flows is not an easy task, though. It includes long-term business plans, growth plans, and risks associated with future cash flows. After calculating net cash flows, they are discounted at an appropriate discount rate.
2. Market-based valuation: Market- based valuation techniques use “market multiples” to calculate the value of the target company. This approach is related to market equilibrium for company assets. Market multiple is a ratio, calculated by dividing estimated or market value of an asset by a measure. In order to use market multiples in valuation, one has to find comparable deals in similar industries, or comparable deals of companies with similar financial or business matters. It is assumed that multiples of these companies can serve as indicators that can be used to find the value of the target company.
3. Asset-based valuation: Asset-based valuation focus on company assets’ acquisition costs reflected in records. Under this approach, value of a business equals the sum of its components. Net asset value is the value of assets minus value of liabilities of a firm.Book value is the value of assets that are recorded at a date, at a value, by accounting records. Liquidation value is the value that could be realized if a company were sold individually and not as part of a going concern. Some adjustments are made to calculate net asset value, net book value, and liquidation value in order to adjust values to fair market value.
Valuation approaches can be grouped in three categories of income-based, market-based, and asset-based valuation.
1. Income-based valuation: Income-based valuation focuses on finding the fair value of the company, depending on the future cash flows. The key of income-based valuation is future cash flows that a company will generate. The value of a company then, is the sum of present value of its future net cash flows. Calculation of future cash flows is not an easy task, though. It includes long-term business plans, growth plans, and risks associated with future cash flows. After calculating net cash flows, they are discounted at an appropriate discount rate.
2. Market-based valuation: Market- based valuation techniques use “market multiples” to calculate the value of the target company. This approach is related to market equilibrium for company assets. Market multiple is a ratio, calculated by dividing estimated or market value of an asset by a measure. In order to use market multiples in valuation, one has to find comparable deals in similar industries, or comparable deals of companies with similar financial or business matters. It is assumed that multiples of these companies can serve as indicators that can be used to find the value of the target company.
3. Asset-based valuation: Asset-based valuation focus on company assets’ acquisition costs reflected in records. Under this approach, value of a business equals the sum of its components. Net asset value is the value of assets minus value of liabilities of a firm.Book value is the value of assets that are recorded at a date, at a value, by accounting records. Liquidation value is the value that could be realized if a company were sold individually and not as part of a going concern. Some adjustments are made to calculate net asset value, net book value, and liquidation value in order to adjust values to fair market value.