Asset based valuation - example, Finance Basics

Asset Based Valuation - Example

K and K Company Limited is planning to absorb three other companies so as to realize its sales records of Sh.500, 000 per annum.  Its accountants have advised the company to keep such a size which will enable its shares to sell at a minimum price about Sh.16. last published balance sheets of the company is shows as given:

                                                                  Sh.'000'

Ordinary shares of Sh.10 each                    50,000

Reserves                                                    65,000

Current liabilities                                        40,000

Total                                                          155,000

Assets:                                                        Sh.

Fixed assets                                                80,000

Current assets                                            75,000

Total                                                          155,000

For the last 5 years profits were as follows:

     Sh.'000'

1.  9,000

2.  6,000

3.  10,000

4.   8,000

5.   17,000

P/E ratio applicable is 12:1

Estimate the value of the business indicating the lowest offer price and the highest offer price and the share value thereof if it would be viable to take on the three companies if it's to maintain this share value.

P/E Ratio Method

P/E = 12:1   Average profits = 10,000,000

Therefore Value of business  = 10,000,000 x 12

                                                = Sh.120,000,000

Value of shares = Sh.120 million / 5 million shares

                          = Sh.24

Assets Method

                                                Sh.'000'

Assets                                     155,000

Less: Current liabilities          [40,000]

                                                115,000                                                              

Value of shares             =        Sh.115M/5M shares

                                       =         Sh.23

Where like: Po = Price of ordinary shares

                   d   = Dividend at the ending of year one

                    P1 = Price of the share at the ending of one year.

Posted Date: 1/31/2013 2:11:26 AM | Location : United States







Related Discussions:- Asset based valuation - example, Assignment Help, Ask Question on Asset based valuation - example, Get Answer, Expert's Help, Asset based valuation - example Discussions

Write discussion on Asset based valuation - example
Your posts are moderated
Related Questions
Based on the example in Lesson 2, compute your quarterly interest for three years if you deposit $500 at 8 percent, compounded quarterly. Remember to divide the 8 percent by 4 to g

Bell is considering two marketing options for the Canadian launch of their internet-based video streaming service in the first quarter of 2012.   i. A  "soft" launch using prima

Assume IBM pays out all earnings as dividends. Today is t = 0 and IBM just paid a $2 dividend on $2 of earnings. The market expects dividends will grow each year by 5% until t = 4

Homework Chapter 4 A mortgage loan in the amount of $100,000 is made at 12% interest for 20 years. Payments are to be monthly in each part of this problem. a. What will monthly

1) Calculate the yield to maturity of a 7-year $1,000 par value bond with an annual coupon rate of 7.5% and a current price of $1,125. Provide the spreadsheet solutions for both an

Monitoring Costs - Agency Costs This is incurred to prevent undesirable managerial actions. They are meant to ensure that both parties live to the spirit of agency contract. T

List and describe the three career opportunities in the field of finance. Finance has three major career paths that are financial management, financial markets and institutions

Question 1: a) What is dependency ratio and why is it important for pensions? b) For which types of schemes is dependency ratio mostly relevant? Explain c) What is the


Example of Earnings Yield Valuation Estimated maintainable earnings are £240,000 per annum; rate of return required is 25 percent. Calculate the value of the business. V