India Entry & Business Startup Consultings

Valuations of Financial Assets and Securities

Valuation procedure means determining the fair value of a financial asset. Business Valuation practitioners generally perform valuations of business interests, tangible assets, intellectual property, intangible assets, common & preferred stock, and other securities, partnership interests, employee stock option plans (ESOPs), private debt instruments, options, warrants, and other derivative products. These services are provided to assist clients with mergers, acquisitions, dispositions, taxation planning & compliance, financial reporting, bankruptcy, reorganization, litigation and dispute resolution, and strategic planning.  Generally there three classes of asset category valuated by registered valuers.

Main classes of Assets:

  • Land and Building
  • Plant and Machinery
  • Securities or Financial Assets

Valuation of securities or Financial Assets

  • Valuation recognizing the market value of equity instruments, debt instruments, derivatives issued by government agencies, financial institutions, and corporate organizations. 
  • It estimates and determines the appropriate interest rate or interest rates of the expected cash flows. 
  • It drives the securities market value including liquidity, demand, and supply of similar instruments, stock market rates of similar securities, etc.

Role of Valuers Post Companies Act 2013 2017 Rules

  • Through Companies Act 2013 under section 246, the valuation shall be done as per provisions of the Act and by a registered valuer having the required qualification and experience. 
  • Registered valuers provide a framework for the development and regulation of the profession of valuers and manner of valuation, including valuation standards and code of conduct for registered valuers.  
  • From 1st February 2019 onwards valuation under Companies Act 2013 and the Insolvency and Bankruptcy Code, 2016 needs to be conducted by valuers registered with IBBI.

Key reasons for Valuation

There are several reasons and purposes for valuation, few of them are mentioned below:

  • Sale of Business as a going concern: When a business is sold, it is more complex compared to other asset classes. Valuation is required for negotiation while selling the business. The value at which the transaction be done is provided by the valuer. 
  • Business Valuation for Taxation Purposes: Business valuation is also required to be done to arrive at proper tax treatment. The valuer needs to weigh the circumstances and resolve the disagreements between tax authorities and businesses in a way that it does turn out to be a legitimate purpose.
  • Business Valuation for liquidation Purposes: Businesses are also valued for liquidation or winding up focusing to close down the business, realize all the assets and pay off all the creditors of the business. Valuer plays a very critical role to ensure that the creditors are getting their fair dues and there is residue left for the owners as well. 
  • Business Valuation for Mergers/Acquisition and Restructuring: Businesses are evaluated for the accounting perspective. Restructuring business through Merger & Acquisition, takeover leads to a combination of financial statements and combining two or more existing companies into a single business. Many businesses restructure the business to bring forth their most favourable, cost-effective and profitable segments to the forefront.

How ASC helps?

  • Advisory for raising equity or debt financing, including determining the value of equity to be issued to the new partners or shareholders of an entity, or the valuation and equity splits at formation.
  • Evaluations of listed companies, unlisted companies, businesses, shareholdings, goodwill, know-how, brands, and other intangible assets
  • Advisory for Joint Ventures / Associations on equity splits at formation or exit in an independent role
  • Support for litigation or arbitration, expert witness and adjudication work in business valuation disputes
  • Evaluation opinions for unquoted debt or equity instruments and Valuations for regulatory purposes e.g. Takeover Code, the Companies Act
  • Investment decision analysis
  • Maximizing tax benefits for individuals and businesses
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