VALUATION CONCEPTS

VALUATION CONCEPTS

The term ‘ value ‘ has been used to convey a variety of meanings.The different meanings of a value for different purposes.Followings are the different concepts of value.

1. Present Value:- Value is the function of cash flows and their timings and risk.When cash inflows are discounted at the required rate of return to account for their timing and risk we get the value or present value of asset.In  financial decision making the present value concept is relevant.

2.Going concern Value:- In the valuation process the valuation is done on going concern basis.The going concern value is the price which a firm could realize if it is sold as an operating business.The Going Concern Value is always higher than liquidation value.

3. Liquidation Value:-If the firm decides to go out of business it will sell its assets.After terminating the business,the amount which will be realized from sale of assets is known as liquidation value.Since the business will be terminated,the organisation will be valueless and intangibles will not fetch any price.The liquidation value is the lowest value of the firm.Generally the true value of the firm will be greater than the liquidation value

4. Replacement Value :- The assets are shown on historical cost in the balance sheet.This cost may not relevant in the present context.Replacement value is the cost which is a firm will have to spend if it were to replace the asset under present condition.va

5. Book Value :-The assets are shown in the balance sheet at cost less depreciation is called Book Value.The book value per share can be determined by dividing the common shareholders equity i.e capital plus reserves and surplus  by the number of shares outstanding.

6. Market Value :- Market value of an assets or security is the value at which it can be sold at present.It is argued that actual market prices are appraisals of knowledgeable buyers and sellers who are willing to support their opinions with cash.

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