Role of CMAs in Business Valuation Vinay Tandon B.Sc.

, PGDCA, PGDBA, FICWA, MIIA (USA)

REVIEW
Mr. Tandon has defined Business as the state of being busy in doing commercially viable and profitable work in context of an individual as well as society. According to him, Business is the social science of managing people to organize and maintain collective productivity toward accomplishing particular goal. Valuation means the act or process of assessing value or price of both tangible and intangible assets. It is a process and set of procedures used to estimate the economic value of an owners interest in his/her business. He opines that in the era of economic liberalization, companies are relying on capital market, acquisitions, and strategic alliances. In such a scenario it is important to answer the question How should the value of a company or a unit or a division of a company be appraised? Goal of such appraisal is to estimate the fair market value of a company i.e. the price at which property would change hands between a buyer and seller. A typical business valuation starts with description of national, regional and local economic conditions followed by the industrial conditions. Reason and circumstances surrounding business valuation are stated which are known as business value standard. It is the hypothetical conditions under which the business will be valued.

Need for Valuation He finds following to be the major reasons why valuation is needed: Buy/Sell agreements Retirement of partner/ Dissolution of partnership Succession planning Ownership Disputes Mergers and acquisitions Restructuring the business Investment decisions Wealth planning Tax planning Applying for loan Filing for bankruptcy

Engagement of professional accountants and skill required Professional accountant estimates the value of business, tangible and intangible assets along with its liabilities, intellectual property, and securities such as debt, equity and derivatives. Before engaging any accountant following things are taken under consideration Whether the Accountant is having sufficient resources to perform Whether he is having any conflict of interest with organization Knowledge of taxation aspect Knowledge of accounting standards Understanding of employee performance measurement criteria in case of valuation for stock options

Methods of Business Valuation According to him, the financial statement analysis generally involves ratio analysis, trend analysis and industry comparative analysis. By comparing a companys financial statement of different time periods, the valuation expert can value growth or decline in revenues or expenses, change in capital structure or financial trends. Comparison with industry helps in risk assessment and ultimately

in determining the discount rate. For analyzing, normalization of financial statements may be required. This falls into four category Comparability adjustments Non-operating adjustments Non-recurring adjustments Discretionary adjustments

Methods include the following concepts Discounted Cash Flow Method Net Asset Value Method (Balance Sheet Method) Market Multiple Method Liquidation Value Dividend Capitalization Method

Role of CMAs He is of opinion that when CMAs enter into accounting career they have an option to move into auditing, taxation, transaction or advisory services. They have the role of information managers in a market where distribution of information is asymmetrical. Business Valuation falls under the subset of transaction advisory which focuses on financial health of a company. They assist the individuals and corporations by calculating the net worth of their business that in turn helps them in making informed decisions. It also helps in cutting costs and generating profits from the sale or purchase of any property or other tangible assets. They also create financial models and reports that outline clients tax and regulatory compliance activities. The article clarifies the basics of business valuation and its importance in todays world as well as it also highlights the role of CMAs in the field.