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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 så 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
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