Page 191 - Corporate Finance PDF Final new link
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                  BRILLIANT’S    Long Term Financing and Valuation of Goodwill & Shares             191


                      The following matters must be taken into    B{³dQ>r eo¶a {S>{dS>|S²>g Ho$ {bE CnbãY Ano{jV
                  consideration while making an estimate of the  â¶yMa àm°{’$Q²>g H$m AZw‘mZ H$aVo g‘¶ {ZåZ{b{IV {df¶m|
                  expected  future profits  available for  equity
                                                              H$m {dMma H$aZm Amdí¶H$ h¡…
                  share dividends:
                   1. The average past profits of the company  1. H§$nZr H$m Am¡gV {nN>bo bm^ H$m g‘m¶moOZ H$aZm
                      require an adjustment, if necessary, should  hmoVm h¡, ¶{X Amdí¶H$ h¡, {nN>bo g‘¶ go {^ÝZ
                      any special factor(s) cause the future prof-  ^{dî¶ Ho$ bm^m| H$m H$moB© {deof H$maH$ H$maU hmoZm
                      its to differ from the past.                Mm{hE&
                   2. Adequate provision should be made for de-  2. S>o{à{gEeZ, Q>¡³goeZ VWm Aݶ bm¶{~{bQ>rO Ho$
                      preciation, taxation and other liabilities.  {bE n¶m©ßV àmdYmZ hmoZm Mm{hE&
                   3. The amount of profits to be set aside for  3. bm^ H$s am{e H$mo {à’$a|g eo¶a {S>{dS>|S> go AbJ
                      preference share dividend.                  {ZYm©[aV H$aZm hmoVm h¡&
                      In connection with the valuation of shares  ¶rëS> AmYma na eo¶g© Ho$ ‘yë¶m§H$Z Ho$ g§~§Y ‘|
                  on the yield basis, the following points may be  {ZåZ{b{IV q~XþAm| na C{MV {dMma {H$¶m Om gH$Vm h¡…
                  given due consideration:
                   1. Depending on the circumstances, the av-  1. n[apñW{V¶m| Ho$ AmYma na [aQ>Z© H$s EdaoO aoQ> H$mo
                      erage rate of return is generally taken for  gm‘mݶV… VrZ go nm§M df© Ho$ {bE {b¶m OmVm h¡>&
                      three to five years.
                   2. During a period of time, if the profits fluctu-  2. EH$ g‘¶ Ad{Y Ho$ Xm¡amZ ¶{X bm^ VoOr go âb³MwEQ>
                      ate violently, it is better to eliminate ab-  hmoVm h¡ Vmo [aQ>Z© H$m EdaoO aoQ> Agm‘mݶ Ad{Y¶m|
                      normal periods, where the profits earned    H$mo g‘má H$aZo Ho$ {bE AÀN>m h¡ Ohm§ A{O©V bm^
                      are too high or too low.                    ~hþV A{YH$ ¶m ~hþV H$‘ h¡&
                   3. The rate of dividend is dependent on the  3. {S>{dS>|S> H$s Xa H§$nZr H$s {b{³dS> pñW{V na {Z^©a
                      liquid position of the company. If the liquid-  h¡& ¶{X H$ånZr H$s {b{³d{S>Q>r pñW{V g§VmofOZH$
                      ity position of the company is not satisfac-
                      tory, it will not be in a position to declare  Zht h¡ Vmo ¶h {S>{dS>|S> H$s n¶m©á Xa Kmo{fV H$aZo H$s
                      adequate rate of dividend though the com-   pñW{V ‘| Zht hmoJr, ¶Ú{n H§$nZr Zo n¶m©á AqZ½g
                      pany earned adequate rate of earnings.      aoQ> àmßV H$s h¡&
                      Under this method, shares are valued on     Bg {d{Y Ho$ A§VJ©V eo¶g© H$m Ano{jV {S>{dS>|S²>g Ho$
                  the basis of the expected dividends.        AmYma na ‘yë¶m§H$Z {H$¶m OmVm h¡&

                      The following formula is adopted for valu-  eo¶g© Ho$ ‘yë¶m§H$Z Ho$ {bE {ZåZ{b{IV ’$m°‘y©bm
                  ation of shares:                            AnZm¶m OmVm h¡…

                                        Expected Rate of Dividend (ERD)
                      Value per Share                               Paid-up Value of Share
                                         Normal Rate of Return (NRR)
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