Business Valuation Approaches

"Overweight cheap asset classes and underweight expensive ones." This strategy sounds simple, but it’s not. There are two big challenges: 1. It isn’t easy to catch turning points. “To unlock a valuation advantage, you need a catalyst,” said my colleague Charles Shriver, portfolio manager and cochair of the Asset Allocation Committee. That’s why our process incorporates fundamental, macroeconomic, and sentiment factors. 2. Secular changes can create "value traps”. For the last 20 years, relative to growth stocks, value stocks have gotten cheaper and cheaper... and cheaper. For investors who seek to make money from relative valuations reverting to the mean—which historically has tended to work over time and across asset class pairs (see references below)—that’s about as disheartening a chart as I’ve ever seen. What has created this mother of all value traps? In one word, technology. In more words, corporate business models have shifted from investing in hard assets (property, plant, and equipment) to intangibles (Research & Development). The breakthroughs from intangible investments have been highly disruptive to legacy business models. “You need to incorporate innovation into classic macroeconomic theory. If the pace of innovation is increasing, it’s easier to be in growth stocks,” said a member of our Asset Allocation Committee. Accounting practices have failed to keep pace with this shift. According to Lev and Srivastava (2002), growth companies—especially tech companies—that invest in intangibles have looked increasingly expensive due to decreases in three important metrics: ○ Book values: “A firm investing heavily in R&D, IT, brands, or business processes (e.g., customer recommendation algorithms), may appear to be an overvalued company... whereas in reality its valuation isn’t excessively high when book value is properly measured.” ○ Earnings: “Reported earnings of companies with increasing investments in intangibles are understated, due to the immediate expensing of intangibles, leading to overstated P/E ratios.” ○ Cash flows: “Cash flows [are also] calculated after the deduction of intangibles, and therefore, do not solve the accounting-deficiency discussed above.” For more on this discussion: https://lnkd.in/eimDS9_P 1. See back test results in Page, Sébastien (2020), “Beyond Diversification: What Every Investor Needs to Know About Asset Allocation”, McGraw-Hill; p 45-60. Asness et al. (2013), “Value and Momentum Everywhere,” Journal of Finance, Vol. 68, Issue 3; Bhansali et al. (2015), “Carry and Trend in Lots of Places,” Journal of Portfolio Management, 41 (4). Summer 2015 2. Baruch Lev and Anup Srivastava (2022), "Explaining the Recent Failure of Value Investing", Critical Finance Review: Vol. 11: No. 2, pp 333-360.

Today I've published an article on Market-Expected Return on Investment (MEROI) - a powerful framework that's transforming how I analyze companies in our increasingly intangible economy. I wrote this piece because I've grown frustrated with how traditional metrics fail us in a world where intangible investments dominate corporate spending. When companies like #Microsoft invest heavily in R&D, software, and brand building, traditional accounting treats these as expenses rather than the investments they truly are. This creates a 𝐟𝐮𝐧𝐝𝐚𝐦𝐞𝐧𝐭𝐚𝐥 𝐝𝐢𝐬𝐜𝐨𝐧𝐧𝐞𝐜𝐭 𝐛𝐞𝐭𝐰𝐞𝐞𝐧 𝐫𝐞𝐩𝐨𝐫𝐭𝐞𝐝 𝐟𝐢𝐧𝐚𝐧𝐜𝐢𝐚𝐥𝐬 𝐚𝐧𝐝 𝐞𝐜𝐨𝐧𝐨𝐦𝐢𝐜 𝐫𝐞𝐚𝐥𝐢𝐭𝐲. MEROI solves this problem by revealing what return the market actually expects a company to generate on its investments. Unlike backward-looking metrics like ROIC, MEROI decodes the expectations embedded in current stock prices. 𝐓𝐡𝐞 𝐤𝐞𝐲 𝐭𝐚𝐤𝐞𝐚𝐰𝐚𝐲𝐬: - Traditional accounting significantly distorts our understanding of companies with high intangible investments, creating market inefficiencies savvy investors can exploit. - By properly reclassifying portions of SG&A as investments rather than expenses, we get a dramatically different picture of a company's steady-state value versus future growth opportunities. - My detailed case study shows how MEROI for a software company drops from 25% to 16% when properly accounting for intangibles - completely changing how we should view market expectations. I've included a comprehensive framework for implementing this approach in your own analysis, from industry selection to expectation analysis. 𝐖𝐡𝐚𝐭 𝐲𝐨𝐮'𝐥𝐥 𝐥𝐞𝐚𝐫𝐧: - How to distinguish between genuinely unprofitable businesses and those creating substantial value through intangible investments; - how to identify expectation mismatches that could signal investment opportunities; and - how to more accurately assess whether seemingly high valuations are actually justified. For anyone serious about understanding market expectations in today's economy, MEROI provides a systematic edge that traditional metrics simply can't match. #valuation

Landmark Decision on Assessment of Damages involving Loss of Crypto Assets Our team successfully represented the group of over 80 claimants in this representative action in this recent Singapore High Court decision, SGHC [2026] 31, securing a judgment of over US$10 million in damages. This assessment of damages proceeding, which involved cross-examination, required us to engage with novel legal issues concerning the valuation of #cryptocurrency assets. A central issue was determining the valuation date for loss of access to #crypto assets on an exchange platform—whether losses should be assessed when the access was lost (first date of breach), or the present day, or some other date. The Court held that the valuation date is essentially linked to the doctrine of mitigation. While the "breach date" rule is the starting point, it is not absolute. This is based on the assumption that the innocent party should go into the market to obtain a substitute immediately. However, if applying it would cause injustice, or if the claimant could not reasonably mitigate at that time, the court has the power to fix a different date. The Court held that the valuation date should be fixed at the time when a claimant could reasonably be expected to mitigate their loss. This depends on knowledge of the breach, and whether it was possible and reasonable to mitigate losses at the time. The Court considered and declined to adopt the "New York rule" (often applied in US securities cases), which assesses damages by the "highest intermediate value" within a reasonable time. The Court reasoned that this rule risks giving claimants a windfall based on hindsight, preferring instead a formulation that strictly ties valuation to the possibility and reasonableness of mitigation. Kudos to the team for their rigour in cross-examination and submissions on these novel issues and delivering for our clients. Stuart PETER, James Tan, Zennus Neo, Dilys Chuah, Zhiyuan Chen, Covenant Chambers LLC #CryptoLaw #Litigation #SingaporeLaw #Disputes #DigitalAssets #Blockchain 

✨ Appeal Win on Section 56(2)(viib) – Share Premium Addition Deleted - In a recent NFAC appeal order, an addition of ₹1.13 crore u/s 56(2)(viib) was deleted. The Assessing Officer had taxed share premium on the ground that actual performance did not match projections in the DCF valuation prepared by a Chartered Accountant. The AO argued that the mismatch justified treating the premium as “income from other sources.” The appellant highlighted that: 🔹 Valuation was done strictly as per Rule 11UA using the DCF method, one of the prescribed options. 🔹 Projections vs. actuals cannot be compared with hindsight – valuation must be judged on the valuation date. 🔹 Issuing shares at a premium is a commercial decision between company and investors – not for tax officers to guess. 🔹 Multiple judicial precedents (Vodafone M-Pesa, Cinestaan Entertainment, Rameshwaram Strong Glass, etc.) hold that valuations under prescribed methods cannot be rejected merely because actuals vary later. The NFAC accepted these submissions, condoned delay due to COVID/portal glitches, and ruled that the AO erred in law. The addition was deleted. ✅ Key takeaway: For startups and growth companies, DCF-based valuations remain valid even if projections differ from future results. Tax officers cannot rewrite valuation reports with hindsight. ❓Do you think Section 56(2)(viib) was a major hurdle for genuine businesses raising funds in India? #IncomeTax #NFAC #TaxLitigation #WinningLitigation #DirectTax #DCF #StartupIndia #Rule11UA #CAIndia #Taxation

Valuer’s Professional Takeaways: 1. Valuation Must Be Legally Defensible: Always prepare valuation reports keeping in mind Rule 8(5) of the SARFAESI Rules, 2002 — the valuation must be realistic, backed by comparable sales, and clearly mention assumptions and limitations. 2. Maintain Transparent Documentation: Keep signed inspection photographs and site visit records. Record any encroachment, shared boundary, or identification difficulty in remarks (never skip). Clearly define whether the property was demarcated or undemarcated, vacant or occupied. 3. Avoid Inflated or Deflated Estimates: Avoid over-valuation (which can mislead the bank and result in failed auctions). Avoid under-valuation (which can be challenged as causing borrower loss). Use dual check valuation where feasible (one internal cross-check before submission). 4. Valuer’s Legal Safety Tip: If the property has merged boundaries, construction beyond limits, or unclear title possession, mention it clearly under a “Professional Disclaimer” so that responsibility for legal/title issues does not shift to the valuer. 5. Ethical Reminder: Courts increasingly rely on valuer’s reports during disputes. A factual, evidence-based report protects both the bank and the valuer from allegations of bias or negligence. From book Valuation essential vol 2 https://lnkd.in/gwbmYpsZ

While brushing up on my CFA Concepts, I decided to why not delve a little further into practicality... I made a valuation model on the third-largest tele-communication company (by revenue) - AT&T (NYSE: Ticker "T") Using the Dividend Discount Model (DDM) approach, I considered finding the intrinsic value of AT&T, given its relatively stable dividend payments every year. First step was finding the sustainable growth rate for dividends (g) using the historical dividend payout provided in their Investor Relation website from 1984 till 2025. One could argue I should have chosen a shorter time period, say after 2008, because of regime change. This will be referred to after extensive research that which timeline should be used, along with a multi-period DDM model. For this, I chose 3 scenarios - Best, Base, and Worst, and conducted scenario analysis using these 3 growth rates. Next step was using CAPM = Rf + (Rm - Rf) Beta, to find out the Cost of Equity. For this, I used the 10-year US Treasury Bond Yield as the risk-free rate and the S&P 500 10-year annualised rate for Market Return. Since this was a short project, I didn't use the Fama and French Five Factor Model. Once I got my inputs, I used the Gordon Growth Model (GGM) to find out the intrinsic value of AT&T, and comparing it with the current market price, I could see it was overvalued. Result (summary): In my base case, the model suggests an intrinsic value that is $9.1136 below the market price, indicating the stock is currently priced at a premium to the dividend-driven intrinsic estimate. However, this might also be because it was a very simple valuation model, and it doesn't take into consideration the current geopolitical struggles and human tendency to buy safe stocks that provide stable dividends. Feel free to check it out below and share your own opinions and what practices you use to value your equity stocks. If you’re interested in the Excel behind this model, DM me or comment below and I’ll share it. Would love to hear: for telecoms, do you prefer using CAPM or a multi-factor approach for cost of equity? #Valuation #CFA #EquityResearch #FinancialModeling #Finance

Most finance students know that dividends matter. But very few understand... 👉 How can you estimate the intrinsic value of a stock using its future dividends? That's where the Gordon Growth Model comes in. So I created this one-page note to simplify: ✔️ What the Gordon Growth Model is ✔️ The intuition behind the formula ✔️ The key assumptions ✔️ A simple numerical example ✔️ When the model works—and when it doesn't The biggest realization for me was: > A stock's value today is simply the present value of all its future dividends, assuming they grow at a constant rate forever. Imagine a company that pays a dividend every year... and those dividends are expected to grow steadily over time. Instead of guessing what the stock is worth... the Gordon Growth Model helps estimate its intrinsic value using just three key inputs: • Expected Dividend • Required Rate of Return • Growth Rate One insight many finance students miss: 📌 The model is extremely sensitive to the growth rate (g) and the required return (r). Even a small change in either assumption can lead to a significant change in the estimated value. That's why the Gordon Growth Model is best suited for mature, stable companies with predictable dividend growth—not high-growth companies that don't pay regular dividends. This concept is fundamental to: • CFA Program • Equity Valuation • Corporate Finance • Equity Research • Investment Banking • Fundamental Analysis Once you understand the intuition... you stop treating stock valuation as just a formula. And start understanding how dividends, growth, and investor expectations come together to determine value. Because in valuation: ➡️ Higher expected dividends increase value. ➡️ Higher growth increases value. ➡️ Higher required return decreases value. ➡️ Small changes in assumptions can have a big impact on intrinsic value. Which valuation topic should I simplify next? #Finance #GordonGrowthModel #DividendDiscountModel #InvestmentBanking #CFA #CFALevel1 #CFALevel2

Share Premium Valuation Dispute Resolved at CIT(A) Stage with Addition worth 14Cr. Recently, a client approached us with a challenging situation. The tax department had questioned the share premium valuation on fresh equity issuance, where shares were issued at a price of about ₹2,250 per share (including premium). The Assessing Officer, however, recalculated the Fair Market Value (FMV) at nearly ₹740 per share, alleging overvaluation, and made a substantial addition of around ₹14 crore under Section 56(2)(viib of the Income-tax Act (popularly known as Angel Tax). The core issue raised by the Assessing Officer was the rejection of valuation of unquoted shares, despite the fact that our client had followed a legally permissible method under Rule 11UA, using audited balance sheets and independent valuation reports. The Catch: That these shares were issued to the related parties and the sister concern of the assessee company. Our approach: #️⃣ Conducted a detailed review of the valuation methodology adopted. #️⃣ Highlighted that the law allows the assessee to choose from prescribed methods, and once exercised, the AO cannot substitute his own valuation merely on assumptions. #️⃣ Demonstrated that the valuation was backed by audited financials and duly certified, making the addition unsustainable. Key Findings: Shares were issued to a sister concern, not to outsiders, so no suspicion of black money. Outcome: At the CIT(A) stage itself, we successfully demonstrated the correctness of the valuation. The entire addition of ₹14 crore was deleted, and the client obtained the relief they rightfully deserved. This case is a perfect example of how a strong technical position, combined with proper documentation, can protect genuine business transactions from unnecessary tax exposure. #IncomeTax #AngelTax #CITA #TaxLitigation #ShareValuation #FairMarketValue #Rule11UA #TaxAppeal #CorporateTax #TaxRelief #ValuationDispute #TaxLaw #Finance #BusinessCompliance #Startups #Investments #PrivateEquity

Master these 7 principles and you'll navigate distressed land valuation like a pro. When land is distressed, encumbered, or disputed, standard valuation methods fall apart. I've learned that distressed properties demand a completely different approach - one that blends legal insight, market reality, and practical assessment. Here's my structured framework for distressed land valuation: 1. Start with legal clarity, not physical inspection. The title determines value more than the soil. Before stepping on the property, I examine encumbrances, mortgages, pending litigation, and government notifications. One unclear document can slash marketability by 50% or more. 2. Quantify the usable area, not the plot area. Distressed land often includes encroached sections, disputed boundaries, and areas with access limitations. I calculate net usable area because that's what buyers actually consider. 3. Apply a realistic time discount. Distressed land doesn't sell fast. Buyers expect negotiation time, legal resolution, and documentation cleanup. A normal plot sells in months; distressed ones take years. My valuation reflects this time cost. 4. Risk loading based on severity. Not all distress is equal. Minor boundary issues get small discounts, while active litigation demands steep reductions. Each distress type requires different risk multipliers - this is where professional judgment matters. 5. Consider resolution cost as direct deduction. I factor in legal fees, settlement payouts, rectification charges, and land levelling costs. Resolution isn't optional - it's embedded in market behavior. 6. Market evidence must be segregated. I never compare distressed land with clean properties. Comparables must match status, risk level, and title clarity. 7. Fair value doesn't equal market value in distressed conditions. Fair value reflects orderly transactions; market value reflects current distressed conditions. The latter governs reality. Master these 7 principles and you'll turn distressed land valuation from guesswork into expertise.

🔥 What Wall Street Missed About the $1.4B Prada–Versace Deal. 🔥 Prada’s acquisition of Versace looks like a fashion headline. But viewed through an intangible-asset lens, it’s something more interesting: a mispriced brand-equity opportunity. Versace’s recent financial performance has been inconsistent — margin swings, over-reliance on outlet channels, creative drift. If you only look at accounting metrics, the business appears “stalled.” But that’s the problem: accounting captures tangibles, not economic reality. What actually drives enterprise value in luxury is almost entirely intangible: • brand equity • design IP and archives • creative identity • celebrity and cultural affiliation • distribution relationships • loyalty curves and premium willingness-to-pay • and the option to reposition a brand in the future None of these sit on the balance sheet. All of them drive the price. This is why Versace is both: (1) financially underperforming, and (2) economically valuable. Prada understands this gap. They didn’t buy a struggling retailer. They bought an under-leveraged intangible asset the previous owner wasn’t fully monetizing. And the playbook is clear: 1. Rebuild creative coherence: Luxury demand is narrative-driven. Creative discipline can shift perceived brand value far faster than physical investment. 2. Reduce outlet exposure: Strengthening scarcity immediately improves pricing power and protects brand heat. 3. Tighten distribution and execution: A strong brand with weak retail discipline destroys margin; a strong brand with disciplined distribution unlocks it. 4. Use portfolio synergies without identity dilution: Prada’s minimalist aesthetic and Versace’s maximalism don’t compete — they complement. This is portfolio strategy, not cost strategy. 5. Reprice the brand: If Prada restores luxury positioning, 3–6 points of gross-margin expansion over 24–36 months is realistic — and has precedent across the sector. The broader story? Luxury M&A is becoming IA arbitrage: buying heritage, cultural equity, and consumer mindshare — then applying better management to unlock the value the market is mispricing. The physical assets are incidental. The intangible assets *are* the deal. This is where modern value creation is happening. In leading Andersen Consulting’s Intangible Asset practice, I see this pattern again and again: the biggest value in modern M&A sits off the balance sheet. 👉 What do you think? Did the market undervalue Versace’s intangible assets — or did Prada overpay for potential that may not materialize? 👇 Article link in the comments. #MergersAndAcquisitions #IntangibleAssets #LuxuryBusiness #BrandStrategy #CorporateFinance #Valuation #Prada #Versace #AndersenConsulting