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
Question 1: ‘The Basel II framework provides a range of options for determining the capital requirements for, inter-alia, credit risk and operational risk to allow banks and s


Evaluate the probability of 10 or more customers arriving within 2 hours if on average 7 customers arrive within one hour. Customers arrive independently.

Agency Theory The agency problem between managers and shareholders can be resolved via paying high dividends. If retention is low, managers are necessary to increase additiona


Briefly define the terms proprietorship, partnership, and corporation. Ans: The term proprietorship is used as a business owned by one person. Two or more than two people wh

Formation of Sole Proprietorship Business When an individual plans to start a business, his or her main objective is to earn profit but there are a number of factors to take in

Differences between Equity Finance and Preference Dissimilarity between Equity Finance and Preference are as follows:   Ordinary share capital

Setting a Reorder Point - ROP  Once the order quantity has been determined, the next question to be settled is when to place the order. If an order is released and it takes th

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