VALUATING THE VENTURE

Importance…

• Buying or selling a business,division or major asset.

• Establishinging an employee stock option plan or profit sharing of employees.

• Raising growth capital through stock warrants or convertible loans.

Contd..

• Determining inheritence tax liability(potential estate tax liability).

• Giving a gift of stock to family members.

• Structuring a buy/sell agreement with stockholders.

Evaluation Of Selected Business

• The business environment.

• Profit , sales and operating ratio.

• The business assets.

Due Diligence

• Why is business being sold?

• What is the physical condition of the business?

• How many key personnel wil remain?

Contd..

• What is the degree of competition?

• What are the conditions of the lease?

• Any special licences required?

Contd..

• What are the future trends of the business?

• How much capital is needed to buy?

Underlying Issues

• Goals of buyer and seller.

• Emotional bias.

• Reasons for the acquisition.

Analyzing The Business

• Lack of management depth.

• Undercapitalization

• Insufficient controls

• Divergent goals

Other Factors To Consider

• Avoiding start-up costs.

• Accuracy of projections

• Control factor

Valuation Method

• Adjusted tangible book value.

• Price/earnings ratio method.

• Discounted earnings method.