Vikas Gupta (CHARTERED ACCOUNTANT) (16295 Points)
23 August 2011I have doubt in Amalgamation..........while calculating INTRINSIC VALUE.....for paying to the EQUITY SHAREHOLDERS........
1.What do we mean by Intrinsic value.
2.Why we use Intrinsic value only paying to equity shareholders.
3.why we dont take preferrance share holders while calculating INTRINSIC VALUE.
CMA Ramesh Krishnan
(Cost & Management Accountant)
(71489 Points)
Replied 23 August 2011
1.Intrinsic value is a measure of value based on the future earnings a company is expected to generate for its investors - it attempts to measure the total net assets a company is expected to build in the future. It is considered the true value of the company from an investment standpoint and is calculated by taking the present value of the earnings (attributable to investors) that a company is expected to generate in the future, along with the future sale value of the company. The idea behind this measure is that the purchase of a stock entitles the owner to his or her share of the company's future earnings. If all of the future earnings are accurately known along with the final sale price, the company's true value can be calculated.
2&3. Intrinsic value can be calculated for equity share holder only. because prefernce share holder having particular percentage of profits only allowable,, and that profit also before paying equity share holder need to be paid, so what ever profit after payment of Preference dividend all will go to equity share holder only. so equity share holder is the finally going to share what ever profit or loss of the business and also while repayment of capital also preference share holder having preference but equity share holders only if any thing remaining after payment of all they may get, so preference share calculating Intrinsic value is not give correct vaule, so equity share only having intrinsic value
Thanks
CMA.Ramesh Krishnan
saritha
(IPCC student)
(104 Points)
Replied 23 August 2011
Can you please inter-relate the explanation of INTRINSIC VALUE calculation and payment to Equity shareholders
Aravind..
(CA)
(1262 Points)
Replied 24 August 2011
Intrinsic value is the value of the business to its owners. Equity shareholders are the owners. preference shareholders are not the owners because they get constant returns. Intrinsic value is the total assets of the company reduced by third party liabilities incl of preference share capital.
CMA Ramesh Krishnan
(Cost & Management Accountant)
(71489 Points)
Replied 24 August 2011
This no need to be inter relate both the Intrinsic value and payment, it was given the reason for non applicable of Intrinsic method for Preference shares. I want clarifiy further. Only Equity share holder dividend & capital repayment based on the future earnings capcity of the company, it will vary based on the performance. but Preference shares not having that varrianace in case company in loss they may not get dividend, but in case company earn high profit also, they will get only what percentage fixed. so prefernce share value may be fixed value not intrinsic value ,so only equity share can be calculate Intrinsic value
Hope it clear.
Thanks
CMA.Ramesh Krishnan
6 days Certification Course on GST Practical Return Filing Process
CAclubindia
