Goodwill & its valuation
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This document summarizes different methods for valuing goodwill of a business. It defines goodwill as the benefit arising from reputation and connections that allows a business to earn higher profits. Factors like location, management efficiency, and future competition can affect goodwill. Common methods to value goodwill include the average profit method, super profit method, capitalization method, purchase consideration method, and annuity method. Goodwill valuation is important for events like admitting new partners, business dissolutions, mergers, and government takeovers.
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This document discusses the valuation of goodwill for businesses. Goodwill valuation is used to determine the remaining value of a company if it is purchased, and takes into account factors like reputation, management efficiency, market situation, and competitive advantages. Goodwill needs to be valued in cases like company amalgamation, takeovers, share conversions, and management changes. Key factors that affect goodwill valuation include historical and expected future profits, capital employed, market share, brand position, technology, and relationships. Common methods to value goodwill are the average profits method, super profits method, and capitalization method. These methods calculate goodwill using figures like average profits over several years, super profits above a normal rate of return, and capitalizing averageValuation of goodwill 
Valuation of goodwill Govt. P. G. College, Maldevta (Raipur), Dehradun
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This document discusses various methods for valuing goodwill, including the years' purchase of average profit method, years' purchase of weighted average method, capitalization method, super profit method, and annuity method. It provides examples and calculations to demonstrate how each method is applied in practice. The key information is that goodwill valuation is important for sole proprietorships, partnerships, and companies in various scenarios like sales, mergers, and changes in ownership or profit sharing. Multiple accepted approaches exist to determine the monetary value of goodwill for accounting purposes.Valuation of Goodwill.pptx
Valuation of Goodwill.pptxNaiduMurari
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This document discusses the valuation of goodwill in business. Goodwill represents a competitive advantage such as a strong brand or reputation. It is the amount a buyer is willing to pay over the net tangible assets for an acquired company. Goodwill valuation is needed for sole proprietorships, partnerships, and when a company is sold. Common methods include the average profit method, super profit method, and capitalization methods. The average profit and super profit methods multiply average or excess profits by years of purchase. Capitalization methods determine goodwill by deducting the capitalized value of profits from total capital employed.Good will ppt
Good will pptPMuruganBalaMurugan
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There are several methods to value goodwill:
1. Average Profits Method - Goodwill is calculated as the average profits of past years multiplied by the agreed number of years of purchase.
2. Super Profits Method - Goodwill is calculated as the super profits (profits above normal rate of return) multiplied by the agreed number of years of purchase.
3. Capitalization Method - Goodwill is calculated by capitalizing the average or super profits at the normal rate of return.
4. Annuity Method - Under this method, super profits are discounted using an annuity factor to calculate the present value of goodwill.Valuation of Goodwill (12th commerce / Management Accounting)
Valuation of Goodwill (12th commerce / Management Accounting)Yamini Kahaliya
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The document discusses goodwill, including its meaning, characteristics, factors affecting it, methods of valuation, and provides an example valuation. Goodwill represents the reputation and customer satisfaction that leads to higher profits. It is an intangible asset that is valued using methods like the average profits method, super profits method, or capitalization method. For example, goodwill of a firm was valued at three years' purchase of the average profits of the last five years, which was calculated to be 36,000, resulting in a goodwill value of 1,31,200.Strategic Management Ch02
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The document discusses various approaches to measuring organizational performance, including firm survival, accounting measures, market-based measures, and economic value added (EVA). It provides definitions and formulas for key performance metrics like return on assets, market value added, EVA, and market-based measures. Both the strengths and weaknesses of different performance measurement approaches are outlined.Valuation of goodwill
Valuation of goodwillrukmini (Rohini) balnaik (Udapudi)
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This document discusses the valuation of goodwill. It defines goodwill as the present value of a firm's anticipated excess earnings above a normal rate of return. Goodwill is an intangible asset that arises from factors like business reputation, customer loyalty, and trade name. The document outlines several reasons why goodwill needs to be valued, such as when a business is sold, partners are added or retired, or a firm is converted to a company. It then describes different methods that can be used to value goodwill, including average profits methods, super profits methods, and capitalization methods.
Ch-1- FM- overview.pdf
Ch-1- FM- overview.pdfSunny429247
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This document provides an overview of financial management. It discusses the scope of financial management including long-term decisions like investment, financing, and dividend decisions as well as short-term decisions like working capital management. It describes the roles and responsibilities of finance managers. It also covers topics like financial goals and objectives, the need for a valuation approach given the risk-return tradeoff, agency problems that can arise between managers and shareholders, and how companies typically organize their finance functions.Financial-Management_ivo.pptx
Financial-Management_ivo.pptxLoveTu
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Financial management deals with how a firm obtains funds and how it use them.
Financial management is the area of business management that is devoted to the judicious use of capital and a careful selection of sources of capital in order to geared toward attainment of goals
Business Unit 3 Revision AQA
Business Unit 3 Revision AQALaura Powell
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This document discusses corporate and functional objectives and strategies. It explains that corporate objectives guide the goals of the whole organization, while functional objectives guide each business area based on corporate objectives. Several financial objectives are then outlined, including cash flow targets and cost minimization. Common financial statements like the balance sheet and income statement are explained. Ratio analysis is introduced as a way to measure business performance through ratios like profitability, liquidity, efficiency, gearing, and shareholder returns. The document concludes with a discussion of investment appraisal techniques like payback period, average rate of return, and net present value.Corporate Finance Fundamentals - Course Presentation.pdf
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This document provides an overview of corporate finance. It discusses capital investments and how companies evaluate investments using techniques like internal rate of return and net present value. It also covers mergers and acquisitions, including the 10 step acquisition process and factors to consider in M&A deals. Additionally, it examines capital financing options like debt and equity and how a company's capital structure is optimized based on its life cycle stage.Valuation of goodwill & shares with solution of problems
Valuation of goodwill & shares with solution of problemsafukhan
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The document discusses various methods for valuing goodwill, including:
1) Future Maintainable Profits Method - Which values goodwill based on the future profits a business is expected to maintain. It calculates average past profits over several years to estimate future profits.
2) Super Profits Method - Which values goodwill based on "super profits", the amount of profits earned above a business's normal rate of return on capital employed. Super profits are multiplied by the number of years of purchase to value goodwill.
3) Number of Years Purchase Method - Which values goodwill as the future maintainable profits multiplied by the number of years those profits are expected to continue into the future.
The document provides examples20. 7 ways to value stocks (deb sahoo)
20. 7 ways to value stocks (deb sahoo)Deb Sahoo, MBA(Finance), MS(EE), BTech(EE),
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The document provides an overview of 7 methods for valuing stocks:
1) Net net working capital and net current asset value methods use balance sheets to determine if a stock is undervalued relative to its assets.
2) Asset reproduction value determines the costs for a competitor to replicate a company's business.
3) The Benjamin Graham formula is an income statement method using earnings, growth rates, and bond yields.
4) Earnings power value assesses a company's competitive advantages based on asset values and adjusted earnings.
5) Absolute PE valuation assigns multipliers based on growth, dividends, and business risks.
6) Discounted cash flow valuation finds value as the present value of future cash flows plusVeterinary Practice Valuation
Veterinary Practice ValuationOculus Insights
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Dr Robert Magnus a half day session during the Oculus Insights 2017 EU Summits in Amsterdam on practice valuation for any type of veterinary practice. Goodwill & its valuation
- 1. Presented by: Mrs. Ruchika Associate Professor Commerce Department J.V.M.G.R.R. COLLEGE
- 3. Acc. to Lord Lindley The term goodwill is generally used to denote the benefit arising from connections and reputations.
- 4. Acc. to Spicer and Pegler Goodwill may be said to be that element arising from reputation, connections or other advantages possessed by a bussiness which enables it to earn greater higher profits.
- 5. Features of Goodwill Intangible asset It is liable to constant fluctuations It is valuable only entire business is sold It is difficult to place an exact value It may be purchased or non- purchased.
- 6. Factor affecting goodwill i. Favourable location of business ii. Efficiency of management iii. Nature of goods iv. Monopolistic and other rights v. Risk involved vi. Trend of profit vii. Capital required viii. Future competition And so many..!
- 7. Methods of valuation of goodwill Average Profit Method Super Profit Method Capitalisation Method Purchase Consideration Method Annuity Method
- 8. Average Profit Method Before calculating the average profits the following adjustments should be made in the profits of the firm: a. Any abnormal profits should be deducted from the net profits of that year. b. Any abnormal loss should be added back to the net profits of that year. c. Non operating incomes eg. income from investments etc should be deducted from the net profits of that year. Goodwill=Average profit * no. of years of purchase
- 9. Super profit * no. of years of purchase Normal profit Capital Employed Normal Rate Of Return Super Profit Method Where, Super profit= Actual profit- Normal profit Normal Profit= Capital employed* Normal rate of return
- 10. CAPITAL EMPLOYED Closing capital employed Average capital employed OCE+CCE 2 OCE + 遜 of current year profit CCE - 遜 of current year profit OCE = Opening Capital Employed CCE = Closing Capital Employed It is assumed that profits are earned evenly during the year. Capital Employed= Fixed Assets+Current Assets- Outside Liabilities
- 12. Goodwill= Capitalised Profit- Actual capital employed Capitalised Profits= Average profits/Normal Rate of return Average Profits Method: Goodwill = Super Profits/ Normal Rate of return Super Profit Method:
- 13. Annuity method Super profit Annuity value Goodwill= Super Profit * Annuity Value Annuity Method For Example: Super profit= 4000 Present value of rs.0.282012 annuity @5% return is 1. Goodwill= 4000*1/0.282012 = 14184
- 14. Purchase Consideration Method Purchase Consideration Method Purchase Consideration Net assets Assets- Outstanding Liabilities Goodwill= Purchase Consideration-Net Assets
- 15. Need for valuation of goodwill In case of sole trade: When the business is to be disposed off When someone is to be admitted as a partner For accessing the wealth tax on the death. In case of Partnership: When a new partner is admitted When a partner retires or dies When there is change in the profit sharing ratio When there is dissolution.
- 16. In case of a company: When one company takes over another When two or more companies amalgamate When government take over the business When stock exchange quotations not available, shares have to be valued for taxation purpose such as estate duty, gift tax etc.