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Market Value Approach • Market value approach to value a firm is
simplest of all and can be found by using the market value of equity and debt of the firm at any point of time.Value of the firm
= Market Value of Equity and Debt= Nos. of shares x Market Price/share
+ Nos. of debentures x Market Price/ Debenture
Valuation & Corporate Governance 1Chapter 10
Economic Value Added• EVA is a period-to-period computation,
which can be used to monitor the process of value creation and record historically the growth of the enterprise.
Valuation & Corporate Governance 2Chapter 10
Computation Of EVA • The computation of EVA is a three-step
process.1.Compute the Net Operating Profit After Tax,
called NOPAT 2.Find out WACC for the firm, and the capital
employed and 3.Find EVA as below:
EVA = NOPAT – WACC x Capital Employed.
Valuation & Corporate Governance 3Chapter 10
Drawbacks Of Eva • EVA is not comparable across industries due
to differing efficiencies of capital in different industries. • Measuring EVA is not possible in respect of
projects that have not matured, for which the full economic potential is not realised. • EVA as an absolute value. To measure growth
the ratio of EVA with capital employed will be more appropriate.
Valuation & Corporate Governance 4Chapter 10
Corporate Governance• The split between ownership and management calls
for certain measures of good corporate governance.• 3-Tier governance structure in a company.
• Shareholders at the top, • Board of Directors in the middle, and • management at the bottom.
• Board of Directors ensures that the company management works in the best interest of the various stakeholders. • Company management is expected to work towards
the objectives, under the strategic direction of the board.
Chapter 10 Valuation & Corporate Governance 5
Corporate Governance
• Corporate Governance refers to a set of rules, processes, and structures to ensure that the company affairs are run in a transparent and accountable manner, in the best interest of the stakeholders.
Chapter 10 Valuation & Corporate Governance 6
Principles of Corporate Governance
• Transparency,• Accountability, • Protection of shareholders’ rights, • Involvement of stakeholders.
Chapter 10 Valuation & Corporate Governance 7
Regulatory Framework For Corporate Governance• The corporate regulatory framework
focuses upon the issues of • composition and conduct of board and its
committees; • reporting and disclosure guidelines; • grievance redressal mechanism;• norms on certification and compliance.
• Sarbanes-Oxley Act (2002)• Clause 49 of the listing arrangement
Chapter 10 Valuation & Corporate Governance 8
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