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VALUATION OF GOODWILL AND

SHARES

Juhi Punmiya

RollNo33

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GOODWILL

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Net Value ofbusiness is 10million

BusinessOverall Valueis 15 million

Example:

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5 million extra is for

Brand Name+

The Customers+

The Suppliers

+Its Workforce

=Goodwill

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Goodwill is anintangible assetslinked to anestablished businessbuilt over time, as a business

gains favorablereputationfor maintaining goodcustomers- suppliers relationships & effectivebranding as it is expected to make profit year

after year

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FACTORS AFFECTING THE VALUE OF GOODWILL1.Good Public Relation

2.Regular Customers

3.Quality Maintenance

.Management s!ills

".#ocation

$.Good Relation %it& suppliers

'.Employees

(.Mar!et )ituation

*.)pecial ad+antages

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NEED FOR VALUATION OF GOODWIL

,eed -or +aluation arises under t&e -ollo%ing

circumstances.

C&ange in prot s&aring ratio

/dmission o- a partner

Retirement o- a partner

0eat& o- a partner

0issolution o- a rm

/malgamation o- irm

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METHODS OF VALUATION OFGOODWILL

1 /+erage prot met&od

2 eig&ted a+erage prot met&od

3 )uper prot met&od

Capitali4ation met&od

/: Capitali4ation o- a+erage prot

5: Capitali4ation o- super prot

" Present +alue o- super prot

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/+erage prot met&od

Good%ill

6/+erage Prot x ,umber o-years

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5e-ore calculating t&e a+erage prots certain

ad7ustments need to be made suc& as:

a/ny abnormal prot s&ould be deducted -rom t&e

net prots o- t&at year.

b /ny abnormal losses s&ould be added bac! to t&e

net prots o- t&at year.

c ,on8 operating incomes eg: income -rom

in+estments etc s&ould be deducted -rom t&e net

prots o- t&at year.

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)uper Prot Met&od

Good%ill is calculated on t&e basis o- )uper Prots i.et&e excess o- actual prots o+er t&e a+erage prots.

Capitali4ation Met&od

Capitali4ation o- uture Maintainable Prot Capitali4ation o- )uper Prots

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9aluation o- )&ares

,eed -or 9aluation o- s&ares

)ale and Purc&ase transactions

Met&ods o- 9aluation o- s&ares

ntrinsic met&od

;ield 9alue met&od

air 9alue met&od

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0ata analysis o- 5lue4 #td.

Good%ill6 Rs "

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aluation on ;ield basislue o- E>uity )&ares 6/+erage 0i+idend Rate x Paid up +al

,ormal 0i+idend Rate

6( x 1< ? 1