net asset valuation model

7/29/2019 net asset valuation model

1/14

Nishtha Singh

Nitesh Nair Nikhil Mishra Qazi Fayil Sadaf Shakeel

Saira Khan Rema Bagga

Samreen Jeelani


2/14

INTRODUCTION

With the transformation of economic form from industrial economyinto economy based on knowledge and the transformation ofenterprises nature from economic man into social-ecological-economic man, corporate sustainable growth becomes a morecomplex task.

A sustainable organization is one that while pursuing profit,enlightened companies should take care to protect the environmentand uphold the rights of workers and other stakeholders as well.Maximization of shareholders value is not necessarily the right

objective.


3/14

Max Clarkson (1994) offered a definition, The firm is a system of stakeholders

operating within the larger system of the host society that provides thenecessary legal and market infrastructure for the firmsactivities. The purposeof the firm is to create wealth or value for its stakeholders by converting theirstakes into goods and services.

Generalizing stakeholders commonly create enterprises value, and have the rightsof sharing the enterprises equity.


4/14

A stakeholder perspective indicates that it is no longer tenable to regard theshareholders as the only residual claimants, where residual claimants are defined aspersons or collectives whose relationship to the firm gives rise to a significant residualinterest in the firms success or failure.

Categories Type of value Key stakeholders

Internalstakeholder

Enterprise value

Value of value chain

employees, shareholders,creditors, managers, etc.

suppliers, distributors, thetarget enterprisecustomers etc

External

stakeholder

Society value consumer, community,

pressure groups,environnent etc.

STAKEHOLDERS AND STAKEHOLDERS VALUE


5/14

Enterprises have all forms of stakeholders, in order to serve the different types of

stakeholders effectively; it must classify stakeholders reasonable.

According to relevance of corporate Interests, stakeholders can be divided into two

types: one is internal stakeholders; The common interests and objectives of internalstakeholders is a reflection of the enterprise value, internal stakeholders share theseenterprise value.

The other is external stakeholders, Business activities have an indirect impact onthe interests of stakeholders.


6/14

Stakeholder Value

A major purpose of stakeholder theory is to help corporate understand theirstakeholder environments and manage more effectively within the nexus ofrelationships that exists for their companies. However, a larger purpose ofstakeholder theory is to help corporate improve the value of the outcomes of their

actions, and minimize the harms to stakeholders.

Unsustainable

(valuetransfer)

Sustainabl

e value(win-win)

Unsustainable (lose-

lose)

Unsustainable

(value

transfer)

+ External

stakeholders value

+ Internal

stakeholders value


7/14

In this framework, sustainable value occurs only when a company creates value that is positivefor its internal stakeholders and its external stakeholders. Companies that deliver value tointernal stakeholders while destroying value for external stakeholders have a fundamentallyflawed business model. Starting in the upper left of figure 1 and moving anti-clockwise,consider the following four cases of value creation and destruction.

Unsustainable (Value Transfer). When value transferred from internalstakeholders to external stakeholders, the internal stakeholders represent a risk tothe future of the business.

Unsustainable (Lose-Lose). When value is destroyed for both internal stakeholdersand external stakeholders, this represents a lose-lose situation of little interest to

either.

Unsustainable (Value Transfer). When value transferred from externalstakeholders to internal stakeholders, the external stakeholders represent a risk tothe future of the business.

Sustainable (Win-Win). When value is created for both internal stakeholders andexternal stakeholders, this represents a win-win situation of much interest to either.Enterprises sustainable growth is to achieve a win-win situation of internal

stakeholders and external stakeholders, to avoid value transfer value destruction.


8/14

Value Creating

of

Stakeholder

Whatever approach to stake holding is adopted by business the

first question must be who your stakeholders are and how to

create value forthem?

The route to durable competitive success was by focusing less exclusively on internalstakeholders and financial measures of success, and including all stakeholder relationshipswithin a broader range of measures, and in thinking and talking about business purpose,performance and actions.

In order to achieve the sustainability of value creation, Enterprises need to implementstakeholder value management effectively form levels of enterprise, value chain and valuenetwork.


9/14

Creating

Enterprise

Value

The size of business value-added value depends on value-added of process as well as the size of value-added ofactivities that compose the processes.

In order to improve value-added ability of processes andactivities, it is necessary to implement business processmanagement.

Business process management is an important andeffective enterprise management way, which is based onprocesses and process operations for control object,through streamlining, deleting, merging of processes oroperations.


10/14

The model takes into consideration the following steps:

1. Estimating the future free cash flows based on the assumptionsof changed management over the post-merger forecasthorizon.

2. Estimating terminal value at the forecast horizon.

3. Estimating the cost of capital given its post-acquisition risk andcapital structure.

4. Discounting the estimated free cash flows, and

(a) adding cash flows from other sources like disposal of assetsor divestments.

(b) Subtracting expenses such as tax on gains from disposalsand divestments as well as acquisition costs.


11/14

5. Comparing the estimated equity value for the target with its pre-

acquisition standalone value to determine the added value fromthe acquisition.

6. Describing how much of the added value should be given away toshareholders as control premium.

Value of business = Present value of free cash flow duringexplicit forecast period + Present value of free cash flow forthe continuing period after the explicit forecast period.


12/14

Cash Flow Drivers:

There are some important value drivers that determine the level offirms cash flows. These are:

Sales growth in terms of volume and value Operating profit margin New capital investments

New working capital investment Cost of Capital Growth Rate

However the acquiring companys management plans aim at creatingadditional value from the merger in addition to the value drivers.


13/14

The enterprise value creation process can be further enumerated with the helpof a model as:

Enterprise value

Shareholder value

Free cash flowfrom operations

Cost of Capital

Sales growth Margin Planning horizon, etc Market share

Fixed marketinvestment

Working capital Acquisitions, etc

Credit rating

Tax rate Capital Structure Dividend policy, etc

Business Strategy Investment Strategy Financing Strategy

Various Corporate Strategies


14/14

net asset valuation model

Documents