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Category: Business and Industry
Date Submitted: 10/12/2012 09:09 PM
5.35
GUIDELINES FOR VALUATION OF EQUITY SHARES OF
COMPANIES AND THE BUSINESS AND NET ASSETS OF BRANCHES
PART I
1.
These are operating guidelines for valuation of equity share of companies.
Briefly, they will be referred to as valuation guidelines.
2.
These are purely administrative instructions for internal official use and are,
therefore, not to be quoted, cited or published as the official guidelines of the
Government.
3.
They will be effective from the date of their issue and will be applicable to all
pending and future cases arising for consideration in the Department of Economic
Affairs, Ministry of Finance.
4.
Specially, these guidelines will be applicable to the valuation of:(a)
equity shares of companies, private and public limited;
(b)
Indian business/net asses of the sterling tea companies; and
(c)
Indian business/net assets of the branches of foreign companies.
PART II
Principles and method of valuation
5.
The objective of the valuation process is to make a best reasonable judgment of
the value of the equity share of a company or of the business and net assets of a branch in
cases arising for valuation under the Foreign Exchange Regulation Act, 1973, and the
Capital Issues (Control) Act, 1947. The best reasonable judgment of the value will be
referred to as the fair value (FV) and it will be arrived at on the basis of the following in
the manner described in the subsequent paragraphs:
(1)
(2)
(3)
Net asset value (NAV);
Profit-earning capacity value (PECV);
Market value (MV) in the case of listed shares.
6.1
Net asset value (NAV). – The net asset value, as at the latest audited balancesheet date, will be calculated starting from the total assets of the company or of the
branch and deducting therefrom all debts, dues, borrowings and liabilities, including
current and likely contingent liabilities and preference capital, if any. In other words, it
should represent the true “net worth” of the business...