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
1. Describe the similarities and differences in between an ordinary annuity, an annuity due, and perpetuity.  Provide a methodical answer, including examples to demonstrate your po

Given the following Present Value Plot for Projects A and B, which are mutually exclusive projects, answer the following questions: (i) What is the DCFROR for Project A? fo

Weighted Average Cost of Capital Weighted Average Cost of Capital or WACC is also called the overall or composite cost of capital. Since various capital components have diffe

Problem: (a) Describe why a critical analysis of the following is important while reading a research article: (i) The author, (ii) The date of publication. (b) What do

Characteristics of Sole Proprietorship A. It caters for customers' personal attention B. Accounts do not must be audited C. Limited to such finances like: F

What are the Features of Stock Exchange The key features of stock exchange are as below: (1) Organised Market: Stock Exchange is an organized market. Each stock exchang

Cash and Marketable Securities Management The management of marketable and cash securities is single of the key areas of working capital management. Because cash and marketabl

In mergers, acquisitions, or other relationships between hospitals and physician groups, what are the benefits to each party from entering into an arrangement with the other? What

Capital Market - Financial Markets These are markets for long term funds along with maturity time of more than one year. As like of financial instruments required here are deb

Factors Affecting Share Prices The entire sorts of influences affect share prices. These influences involves as: 1. The current profit record of the company particularly th