CORPORATE VALUATION

Corporate Valuation

Introduction3

Corporate valuation3

A.Asset based approach3

Computation of Corporate Valuation through Asset based Approach3

Analysis7

B.Market Based Approach7

Computation of the Business Valuation through the Market Based Approach9

Analysis14

C.Income Based Approach15

Calculation of the Business Valuation through Income Based15

Conclusion18

References20

Corporate Valuation

Introduction

Business valuation is said to be the procedure which is used in order to find out the worth of the business. This means that business valuation is the price which is predicted for the business at the time of sale. The worth of business totally depends on many factors. These factors are the started from the current economical state through the balance sheet of the business. Below are the three basic procedures which are used for the measurement of the organizational value. These three approaches are asset based approach, market based approach and the income based approach. Different methods are available in the category of these three methods. The current study focused on the three approaches used for the business valuation of Sainsbury and Tesco (Cornell, 1993, pp. nd).

Corporate valuation

Asset based approach

This type of business valuation is used for the measurement of the net asset value or fair market value of the company's total assets minus with its liability section. The asset based approach is basically used for the knowledge of the company that what it cost them if they recreate the business again. Asset based approach interpretate the asset of the company's asset and liabilities and how much it's worth at the time of sale (Cornell, 1993, pp. nd).

Computation of Corporate Valuation through Asset based Approach

Sainsbury Company

Year

2007

2008

2009

2010

2011

2012

Tangible assets (£m)

8228

7461

8858

8282

9527

10408

Average tangible assets (£m)

=(8228 + 7461 + 8858 + 8282 +9527 + 10408)/ 6

= 45043/ 6

= 7507.17

Fair return on tangible assets (considering 5 %) (£m)

= 375.36

Year

2007

2008

2009

2010

2011

2012

Net earnings (£m)

324

329

289

585

827

799

Average net earnings (£m)

=(324 + 329 + 289 + 585 + 827 + 799)/ 6

=3153/ 6

= 525.5

Average earnings attributable to good will or excess earnings (£m)

= average earnings - fair return on tangible assets

= 525.5 - 375.36

= 150.14

Capitalized average earnings attributable to good will at 18.95% (working 1) (£m)

= Average earnings attributable to good will or excess earnings * 6

= 150.14 * 6

= 900.84

Total value of Sainsbury (£m)

= Average tangible assets + Capitalized average earnings attributable to good will at 18.95%

= 7507.17 + 900.84

= 8408.01

According to the asset based approach, the value of the business of Sainsbury is £8408.01 million.

Tesco Company

Year

2007

2008

2009

2010

2011

2012

Tangible assets (£m)

18186

21528

28009

30081

30829

33300

Average tangible assets (£m)

=(18186 + 21528 + 28009 + 30081 + 30829 + 33300)/ 6

= 161933/ 6

= 26988.83

Fair return on tangible assets (considering 5 %) (£m)

= 1349.442

Year

2007

2008

2009

2010

2011

2012

Net earnings (£m)

1899

2130

2138

2336

2671

2814

Average net earnings (£m)

=(1899 + 2130 + 2138 + 2336 + 2671 + 2814)/ 6

=13988 / 6

= 2331.333

Average earnings attributable to good will or excess earnings (£m)

= average earnings - fair return on tangible assets

= 2331.333 - 1349.442

= 981.89

Capitalized average earnings attributable to good will at 18.95% (working 1) (£m)

= Average earnings attributable to good will or excess earnings * 6

= 981.89 * 6

= 5891.35

Total value of Tesco (£m)

= Average tangible assets + Capitalized average earnings attributable to good will at ...