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Valuation is the process of estimating the market value of a financial asset and liability. Valuation is device to assess the worth of enterprise. Valuation of both the company is must for fixing the consideration amount to be paid in form of cash and share in M&A process. Valuations of both the companies help to safe guard the interest of the share holders in M&A process .

Valuation of business depends upon` Assets it carries ` Equity share price ` Projects in hand ` Risk profile of different classes of business it carries ` Intangible asset it possess

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Assets based valuation method Valuation Relative to industry average methods

Dividend yield method Return on capital employed Earning yield method Price earning method

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DCF valuation methods Theoretical valuation models

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All tangible and intangible assets are to be taken into account. All fictitious assets are to be ignored Present value of goodwill to be include in net asset. but value given in b/s is to be ignored. all outside liabilities to be taken on the value payable on the date of valuation. Any arrear of dividend, provision of tax and provision of doubtful debt should be considered. From the amount of the net asset the claim of the preference share holder to be deducted to get the net amount of asset available to equity share holders.

Asset base valuation method is good where the business is easily expressed in terms of its assets. EX Banks, mining companies etc. But this method is not good for companies where the primary assets are intangible assets like brand value and coy right etc. Major drawback in this method is that it does not value the items like skilled manpower, investment in marketing and research & development cost etc.

Value per share= market price of publically traded company Value of company=market price of equity share * no of equity share out standing OR Equity value + market value of debt+ minority interest + pension provision+ other interests

Intrinsic value of equity share= ` net asset available to equity share holders number of equity share

Value per share= company dividend per share Industrys nominal rate per share Value of business = value per equity share X total no of equity share

Method is based upon the assumption that the dividend policy will remain constant, in practice companies can or do change their dividend policy. This methods gives different valuation for listed or unlisted companies because their dividend policies are different.

To compare listed and unlisted companies instead of dividend yield method earning yield method is used. Calculation of an earning yield value involve three stepPredict the future maintainable profit (annual) Identify the required earning yield with reference of similar companies. Value of business= com. Exp. future maintainable profit Industries normal earning yield

Calculation of return on capital employed involve three stepPredict the future maintainable profit (annual) Identify the acceptable normal rate of return on capital invested with reference of similar companies. Value of business= com. Exp. future maintainable profit Industries normal rate of return on capital employed

Value of company= com. Exp. future maintainable profit X Industrys average P/E ratio Value of share= companys expected earning per share X Industrys average P/E ratio

Fair value of share = ( intrinsic value per share + value per share from earning yield method )/2 Fair value of company = (value of company under asset based valuation method+ value of company from earning yield method )/2

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Capitalization of earnings focuses on the debt of the company that's being merged or acquired. It's a measurement of the ratio between the company's capital structure and its debts = The company's long-term debt . The shareholder's equity plus the company's long-term debt. Long term debt includes things like bank loans and mortgages; it's what the company uses to finance, or pay for, its operations. Shareholder equity is the company's total assets minus total liabilities, that is, the amount that the shareholders can claim after all debts and liabilities are paid. For valuation purposes, the ratio indicates how much debt the company uses to finance its assets. Generally, if the company has low debt and high equity, it's financially sound, and so its sale price will be higher than if it has high debt and low equity.