SUPER SPECIALIZATION

ENTREPRENEURSHIP
IMP QUE
1.Different types of valuation

ans. In finance, valuation is the process of estimating the potential market value of a
financial asset or liability. Valuations can be done on assets (for example, investments in
marketable securities such as stocks, options, business enterprises, or intangible assets
such as patents and trademarks) or on liabilities (e.g., Bonds issued by a company).
Valuations are required in many contexts including investment analysis, capital
budgeting, merger and acquisition transactions, financial reporting, taxable events to
determine the proper tax liability, and in litigation.

Main business valuation method

Discounted cash flows method

This method estimates the value of an asset based on its expected future
cash flows, which are discounted to the present (i.e., the present value). This
concept of discounting future monies is commonly known as the time value
of money. For instance, an asset that matures and pays $1 in one year is
worth less than $1 today. The size of the discount is based on an opportunity
cost of capital and it is expressed as a percentage. Some people call this
percentage a discount rate.

The idea of opportunity cost can be illustrated in an example. A person with

only $100 to invest can make just one $100 investment even when
presented with two or more investment choices. If this person is later offered
an alternative investment choice, the investor has lost the opportunity to
make that second investment since the $100 is spent to buy the first
opportunity. This example illustrates that money is limited and people make
choices in how to spend it. By making a choice, they give up other
opportunities.

Guideline companies method

This method determines the value of a firm by observing the prices of similar
companies (guideline companies) that sold in the market. Those sales could
be shares of stock or sales of entire firms. The observed prices serve as
valuation benchmarks. From the prices, one calculates price multiples such
as the price-to-earnings or price-to-book value ratios. Next, one or more
price multiples are used to value the firm. For example, the average price-to-
earnings multiple of the guideline companies is applied to the subject firm's
earnings to estimate its value.

Many price multiples can be calculated. Most are based on a financial

statement element such as a firm's earnings (price-to-earnings) or book
value (price-to-book value) but multiples can be based on other factors such
as price-per-subscriber.

2. Basis of mergers & acquisition

and: mergers : A merger is a combination of two or more firms in which only one
firm would survive and the other would cease to exist, its asset/ liabilities being
taken over by surviving firm.

Whenever two or more companies agree to merge with each other, they
have to prepare a scheme of amalgamation. The acquiring company should
prepare the scheme in consultation with its merchant banker/ financial
consultant. The main contents of a model scheme, are listed below

• Description of the transfer and the transfer company and the business
of transferor.
• Their authorized, issue and subscribed/ paid-up capital
• Basis of scheme; the main terms, of the scheme in self’-contained
paragraph on the recommendation of valuation report, covering
transfer of asset/liabilities, transfer date, reduction or consolidation of
capital, application to financial institution as lead institution for
permission and so on.
• Change of name, object clause and accounting year .
• Protection of employment
• Dividend position and prospectus
• Management: board of director banking their number and participation
and transfer company’s director on the board
• Application under section 391and 394 of the companies act, 1956, to
obtain high course approval
• Expenses of amalgamation
• Condition of the scheme to become effective and operative, effective
date of amalgamation

The basis of merger/ amalgamation in the scheme should be the report of

the value’s of asset of both the merger partner companies. The scheme
should be prepared on the basis of the values report; reports of the charter
accountant engaged for financial analysis and fixation of exchange ratio,
report of auditors and audited account of both the companies prepared up to
the appointed date. It should be ensured that the scheme is just and
equitable to the shareholders, employees of each of the amalgamating
company and to the public.
amalgamation is an arrangement in which the asset/liability of to or more
firm to form a new entity or absorption of one/more firm with another. The
out come of this arrangement is that the amalgamating firm is
dissolved/wound-up and losses it identity and its shareholders become
shareholders of the amalgeted firm. Although the merger/amalgamation of
firm in India is governed by he provision of the companies act, 1956, it does
not defined this term. The income tax act , 1961, stipulates to pre-requisite
for amalgamation through which the amalgeted company seeks to avail the
benefit of set of / carry forward of losses and unabsorbed depreciation of the
amalgamating company against its future profits u/s 72A ,namely,

1. All the property and liabilities of the amalgamated company /

companies immediately before amalgamation should vest with/
become the liabilities of the amalgamated company and
2. The shareholders other than amalgamated company/its subsidiary
holding at list 90% value of shares/ voting power in the amalgamating
company should become shareholders of the amalgamated company
by virtue of amalgamation. The scheme of merger, income tax
implications of amalgamation and financial evaluation are discussed in
the section.

Following the economic reforms in India in the post-1991 period, there is a

discernible trend among promoters and established corporate group towards
consolidation of market share and diversification into new areas through
acquisition/takeover of companies but in a more pronounced manner
through mergers/amalgamation. Although the economic consideration in
terms of motive and effect of these are similar, the legal procedure involved
are difficult. The merger and amalgamation of corporate constitute a subject
matter of the companies act, the courts and law and there are well-laid down
procedure for valuation of share and right of investor. The
acquisition/takeover bids fall under the purview of SEBI. The terms merger
and amalgamation on the one hand and acquisition and takeover on the
other are treated here synonymously. Section one of the chapter covers the
framework of merger/amalgamation including financial evaluation. The
regulatory framework governing acquisition/takeover is described in section
two.

3. Basis of Intrapreneurship

4. Project formulation & Risk management

 refer to this link it might
Project formulation:

be helpfull
http://www.scribd.com/doc/13735217/Project-
Formulation#open_download
Risk management
Risk management is the identification, assessment, and prioritization of risks
(defined in ISO 31000 as the effect of uncertainty on objectives, whether positive or
negative) followed by coordinated and economical application of resources to
minimize, monitor, and control the probability and/or impact of unfortunate events[1]
or to maximize the realization of opportunities. Risks can come from uncertainty in
financial markets, project failures, legal liabilities, credit risk, accidents, natural
causes and disasters as well as deliberate attacks from an adversary.

he strategies to manage risk include transferring the risk to another party, avoiding
the risk, reducing the negative effect of the risk, and accepting some or all of the
consequences of a particular risk.

Principles of risk management

The International Organization for Standardization (ISO) identifies the

following principles of risk management:[4]

Risk management should:

• create value
• be an integral part of organizational processes
• be part of decision making
• explicitly address uncertainty
• be systematic and structured
• be based on the best available information
• be tailored
• take into account human factors
• be transparent and inclusive
• be dynamic, iterative and responsive to change
• be capable of continual improvement and enhancement
5. Intangible assets & Valuation

ans. Intangible assets are defined as identifiable non-monetary assets that

cannot be seen, touched or physically measured, which are created through time
and/or effort and that are identifiable as a separate asset. There are two primary
forms of intangibles - legal intangibles (such as trade secrets (e.g., customer lists),
copyrights, patents, trademarks, and goodwill) and competitive intangibles (such as
knowledge activities (know-how, knowledge), collaboration activities, leverage
activities, and structural activities). Legal intangibles are known under the generic
term intellectual property and generate legal property rights defensible in a court of
law.

Valuation of intangible assets

Valuation models can be used to value intangible assets such as patents,

copyrights, software, trade secrets, and customer relationships. Since few
sales of benchmark intangible assets can ever be observed, one often values
these sorts of assets using either a present value model or estimating the
costs to recreate it. Regardless of the method, the process is often time
consuming and costly.

Valuations of intangible assets are often necessary for financial reporting and
intellectual property transactions.

Stock markets give indirectly an estimate of a corporation's intangible asset

value. It can be reckoned as the difference between its market capitalisation
and its book value (by including only hard assets in it).

Methods for the Valuation of Intangibles

Cost-based methodologies, such as the “cost to create” or the “cost to

replace” a given asset, assume that there is some relationship between cost
and value and the approach has very little to commend itself other than ease
of use. The method ignores changes in the time value of money and ignores
maintenance.

The methods of valuation flowing from an estimate of past and

future economic benefits (also referred to as the income methods) can
be broken down in to four limbs; 1) capitalization of historic profits, 2) gross
profit differential methods, 3) excess profits methods, and 4) the relief from
royalty method.

1. The capitalization of historic profits arrives at the value of IPR’s by

multiplying the maintainable historic profitability of the asset by a multiple
that has been assessed after scoring the relative strength of the IPR. For
example, a multiple is arrived at after assessing a brand in the light of
factors such as leadership, stability, market share, internationality, trend of
profitability, marketing and advertising support and protection. While this
capitalization process recognizes some of the factors which should be
considered, it has major shortcomings, mostly associated with historic
earning capability. The method pays little regard to the future.

2. Gross profit differential methods are often associated with trade mark
and brand valuation. These methods look at the differences in sale prices,
adjusted for differences in marketing costs. That is the difference between
the margin of the branded and/or patented product and an unbranded or
generic product. This formula is used to drive out cashflows and calculate
value. Finding generic equivalents for a patent and identifiable price
differences is far more difficult than for a retail brand.

3. The excess profits method looks at the current value of the net tangible
assets employed as the benchmark for an estimated rate of return. This is
used to calculate the profits that are required in order to induce investors to
invest into those net tangible assets. Any return over and above those profits
required in order to induce investment is considered to be the excess return
attributable to the IPRs. While theoretically relying upon future economic
benefits from the use of the asset, the method has difficulty in adjusting to
alternative uses of the asset.

4. Relief from royalty considers what the purchaser could afford, or would
be willing to pay, for a licence of similar IPR. The royalty stream is then
capitalized reflecting the risk and return relationship of investing in the
asset.

6. Business plan & Feasibility Analysis

A business plan is a formal statement of a set of business goals, the reasons why
they are believed attainable, and the plan for reaching those goals. It may also
contain background information about the organization or team attempting to reach
those goals. The business goals may be defined for for-profit or for non-profit
organizations. For-profit business plans typically focus on financial goals, such as
profit or creation of wealth. Non-profit, as well as government agency business
plans tend to focus on the "organizational mission" which is the basis for their
governmental status or their non-profit, tax-exempt status, respectively—although
non-profits may also focus on optimizing revenue.

Feasibility analysis (the 2 links below might be of some help)

http://docs.google.com/viewer?
a=v&q=cache:bKJmu9HscV4J:www.cob.fsu.edu/jmi/resources/feasibility.pdf+
feasibility+analysis&hl=en&gl=in&pid=bl&srcid=ADGEESjbb194eGI0x1gdavI
QQjW4Qr4GRShxTnwj4uKGl_Z0UodYnl2q7q7obi8dv0UMyq9-
W6UsbHqUi0MFDx-_XGjVbdaKgfIHwqPa6ZiwzFkuH6-0V6C2pNVUh-
qDQz4n6qNomQ9J&sig=AHIEtbRupqYk8BPFNODu9v60EH1g4YimrA

http://e-articles.info/e/a/title/Feasibility-Analysis/

7.Different types of financing

ans. Broadly speaking there are 6 main ways of funding a company's

needs:

• Receive credit from suppliers

• Obtain lease financing
• Obtain bank loans
• Issue bonds
• Issue stock
• Factor Business Debts

Supplier credit

This is the easiest way that companies obtain funding. Companies buy goods and
services and have anywhere from seven days till 6 months to pay for them; when
companies need more credit from suppliers the financial controllers will negotiate
longer credit terms or larger credit lines. The payment terms can also be stretched
and this can work well because the creditors do not want the customer to go into
bankruptcy taking their money with them.

Lease financing

Instead of buying equipment, many companies choose to lease equipment - this is a

form of financing. Cars,computers and heavy equipment can be financed for short
periods or indeed longer periods.

If it is a short period it is referred to as an operating lease and at the end of the

lease the property is still useful and is returned to the finance company.

Long term leases are, in substance, ways are ways of funding a purchase rather
than buying the temporary services of a piece of equipment. These are often
referred to as capital leases.
For capital leases the leased assets and the financing liability are recorded on the
leasing company's books as though the company had bought the equipment
outright.

Bank financing

The next level of financing involves banks. If a company has a credit line or revolver
with a bank it draws down and pays back up to set limits of credit as cash is needed
and generated by the business. The credit is often secured by assets of the firm
however if a business runs into trouble it may not be able to pay the bank and go
into bankruptcy

Bond Insurance

Bonds have fixed interest rate contractual payments and a principal maturity. The
risk comes to the firm's owners if they cannot be serviced. The principle bond
owners can then exchange them for ownership of the company and oust the
owners.

The After-Tax cost of Borrowing

Interest payments for borrowing from vendors, bankers or bondholders are tax-
deductible, while dividends to shareholders are not. The after-tax cost of borrowing
is the interest cost less the tax benefit.

Stock Issues

Stock issues have non-contractual, non tax deductible dividend payments. Stock
represents an ownership in the business and in all of its assets. If additional shares
of stock are issued to raise cash, this is done at the at the expense of the current
shareholders' ownership interest. New shareholders share their ownership interest
equally on a per-share basis with the current shareholders - this is why analysts say
that the new shareholders dilute the interest of existing shareholders.

Factoring Business Debts

Factoring companies generally pay up to eighty percent of the value of outstanding

invoices straight away provided that they are satisfied that the business debtor is
capable of paying the sums due.
these 2 answers were not found. if any one gets the answers to these 2
questions please let every one know.

8. Basis of corporate restructuring

9. Business Ethics