Valuation of Business Securities & Financial Assets

This book is a comprehensive resource that simplifies the complex world of valuation. As businesses become more globalised and intricate, determining the worth of companies, securities, and various financial assets is no longer solely the purview of niche professionals. This book recognises valuation as a ‘sunrise profession’ in rapidly expanding markets?particularly in India?and acknowledges the growing interest from diverse stakeholders.

It is authored by an experienced practitioner who has valued hundreds of organisations. It offers a well-rounded understanding of traditional valuation concepts and contemporary frameworks influenced by evolving regulations and emerging market trends. The reader learns how to calculate value and why value manifests as it does, considering market conditions, competitive landscapes, innovation, regulation, and more.

This book is an essential reference for professionals, corporate leaders, investors, and students, equipping them with foundational knowledge and advanced strategic acumen.

The Present Publication is 1st Edition authored by Vikash Goel, with the following noteworthy features:

[Holistic Perspective] The book integrates theoretical rigour with practical insights, marrying quantitative analysis with an understanding of business strategy, industry structure, and macroeconomic trends
[Global Concepts with Local Focus] While the principles can be applied globally, the author pays special attention to the Indian context?covering the Companies Act, SEBI regulations, and Income Tax provisions?making it invaluable for those navigating the Indian regulatory landscape
[Illustrations and Case Studies] Readers benefit from numerous examples, case studies, and industry overviews that go beyond formulaic approaches, ensuring they can apply concepts in a variety of real-world settings
[Comprehensive Coverage of Valuation Methods] From standard discounted cash flow (DCF) and dividend discount models (DDM) to the market and cost approaches, as well as specialised valuation scenarios (intangibles, distressed companies, startups, and complex securities), the book ensures breadth and depth

The structure of the book is as follows:

The book is structured to guide the reader logically from fundamental valuation principles through increasingly complex topics
Early chapters focus on foundational concepts?differentiating price and value, analysing various standards of value, and examining the business environment
Subsequent sections build on this groundwork, discussing corporate finance principles, the interpretation of financial statements, forecasting growth, and calculating the cost of capital
The latter part of the book addresses specialised areas, such as the valuation of intangible assets, startups, distressed firms, and complex financial instruments, culminating in chapters on mergers, acquisitions, and the regulatory frameworks that shape today’s valuation landscape

The contents of the book are as follows:

Introducing Valuation
Understanding the difference between price and value
Exploring different bases of value (intrinsic, fair, market, liquidation, synergistic, and participant-specific)
Common purposes of valuation and debunking popular myths
Identifying and leveraging information sources (management, internet, annual reports)
Analysing Business Landscape
Economic, industry, and company analysis tools, including PESTEL, Porter’s Five Forces, SWOT, and more
Industry overviews covering aviation, FMCG, oil & gas, IT/ITES, healthcare, e-commerce, hospitality, telecom, pharmaceuticals, retail, media, iron & steel
Case studies (Zara, Indigo Airlines, Blockbuster) to connect theory with practical outcomes
Corporate Finance
Fundamentals of risk and return, diversification, and measures like variance, standard deviation, and beta
Capital budgeting techniques (NPV, IRR) and their impact on valuation
Dividend policy theories (Walter’s, Gordon’s, Modigliani and Miller’s) and their implications on value
Valuation Standards
Introduction to International Valuation Standards (IVS) and a structured valuation framework
Approaches under IVS (market, income, cost) and their applicability
Valuation processes, key concepts, and quality control measures
Analysing Financial Statements
Analysis of profit & loss statements, balance sheets, and cash flow statements
Adjusting financial statements for valuation, forecasting future statements, and understanding economic value added (EVA), free cash flows, and the role of ESG considerations
Cost of Capital
Determining the appropriate discount rate and its components (cost of equity, cost of debt, WACC)
Capital structure theories (Net Income, Net Operating Income, MM Hypothesis)
Challenges in estimating the cost of capital and addressing international considerations
Estimating Growth Rates
Examining how ROIC, cost of capital, and sustainable growth rates interact
Forecasting revenue, costs, margins, taxes, and working capital for accurate growth estimates
Dividend Discount Model (DDM)
Zero-growth, constant-growth (Gordon model), two-stage, and three-stage DDM
Application of DDM in the Indian market context
Discounted Cash Flow (DCF) Methods Using Free Cash Flows
When to apply DCF and the steps for FCFF and FCFE calculations
Adjusting cash flows for taxes, non-operating assets, and sunk costs
Incorporating ESG factors and determining terminal values
Market Approach to Valuation
Understanding market approach methods (market price, comparable companies, comparable transactions)
Common valuation multiples (P/E, PEG, P/S, P/BV, EV/EBITDA) and industry-specific benchmarks
Applying discounts for lack of liquidity, marketability, and control
Cost Approach ? Valuation from the Balance Sheet
Net Asset Value (NAV) and its implications
References to Rule 11UA under the Indian Income-tax Act
Illustrative case studies and examples
Valuation of Private Firms & Startups
Unique challenges and methods (market, income, cost) for private companies
Startup life cycles, estimating revenues and TAM, key costs, and customer lifetime value
Valuation methods like the Venture Capital, Berkus, and cost-to-duplicate approaches
Valuing Distressed Companies
Structural factors and distress prediction models (Altman Z-score)
Case studies illustrating how to value companies in financial trouble
Valuing Cyclical Businesses
Challenges in valuing firms prone to economic and industry cycles
Adjusting growth rates and understanding cyclicality’s impact on value
Valuing Fixed Income Securities
Bond valuation, yield measures (YTM, YTC), duration analysis, and factors affecting bond prices
Valuation of convertible bonds, preference shares, and relevant regulatory guidelines (FIMMDA)
Valuation of Intangibles
Identifying common intangible assets and their importance
Approaches under Ind AS 38 and IVS for valuing intangibles (market, income, cost)
Determining economic useful life and discount rates
Valuing Complex Securities
Introduction to derivatives, options, and advanced financial instruments
Valuation of ESOPs, real options, and convertible securities
Case studies on convertible bonds and preference shares
Valuation Under Mergers & Acquisitions (M&A)
Understanding synergy, premium, and value creation in M&A deals
Leveraged Buyouts (LBOs), deal structuring and assessing acquisition feasibility
Purchase price allocation, anti-takeover defences, and regulatory considerations
Regulatory Framework Around Valuation
Key provisions under the Companies Act, Income Tax Act, and IBBI regulations in India
SEBI regulations, including ICDR, Buy-Back, LODR, NCS, Takeover, and Delisting framework
Aligning valuations with financial reporting standards (Ind AS 113, Ind AS 103, Ind AS 36, Ind AS 109, Ind AS 40)