Valuation at acquisition (operational assets) Essay

Valuation at acquisition (operational assets) - Essay Example Tangible operational assets generally include assets that may be covered under the broad category of ‘Property Plant and Equipment’ like land and buildings, machineries and equipments, vehicles, and others. Such assets may be acquired by purchase or gift, or the entity may construct its own assets. Regardless of the method of acquisition, decisions need to be made as to which costs should be capitalized and which cost which should be expensed with. In addition the amounts at which such assets should be capitalize is not clear. Intangible assets have the main characteristic is that they lack physical substance. It is generally difficult to estimate the value of intangibles and there is high degree of uncertainty regarding the length of time over which they will provide revenue or future benefits to the entity. â€Å"In general, the value of an intangible asset lies in its future use, and can be estimated from the incremental profits that such use will through off.†(Farok J. Contractor,2001, page 10)1 The initial accounting for intangibles is largely dependent on whether they are purchased or developed internally. Intangible assets include patents, goodwill, copyrights, trademarks, franchises, organizational costs and others. The general rule to capitalized costs is that the purchase price of an asset and all costs incurred in preparing the asset for its intended use are capitalized as part of cost of the asset. Let us examine the capitalization aspect under both tangible (Property Plant and Equipment) and intangible assets Cost of Land that needed to be capitalized is all the expenditure on its acquisition that is incurred for getting it ready for its intended use. Such costs are purchase price and the closing costs like legal fees, fee of the attorney and registration charges. Some time an old structure exists on land being acquired. Then costs of demolishing such structure and also the expenditure relating to clearing, filling, and

Valuation Financial statement analysis Essay Example | Topics and Well Written Essays - 1000 words

Valuation Financial statement analysis - Essay Example The company manufactures and distributes different brands specializing in consumer products including hygiene, nutritional and personal care products. Further, its portfolio has items such as Lipton, Knorr, Magnum, Hellmann’s, Lux, Dove, Omo and Axe. Notably, the company product retails in more than 170 countries around the globe. Financial statement trends Table 1: Unilever financial data from 2008-2012 Â   Â   2008 2009 2010 2011 2012 Â   Â   Â   EPS 1.79 1.21 1.51 1.51 1.58 r 15% DPS 0.73 0.77 0.80 0.85 0.89 g 0.05 Residual Earnings 38,785.00 35,354.00 37,924.00 38,813.00 41,625.00 Â   g in RE 0.05 0.07 0.02 0.07 0.06 Â   discount factors 0.87 0.786 0.675 0.592 0.497 Â   Income 39,523.00 39,823.00 44,262.00 46,467.00 51,324.00 Â   Â   Average EPS growth rate5.4% Â   Â   Â   Â   Â   Â   Â   Â   Â   Table 2: Unilever PLC financial projections from 2013-2017 Â   Â   2013 2014 2015 2016 2017 Â   Â   Â   EPS 1.67 1.76 1.86 1.97 2.09 r 15% DPS 0.93 0.98 1. 03 1.08 1.13 g 0.05 Residual Earnings 44,123.00 46,770.00 49,576.00 52,551.00 55,704.00 Â   g in RE 0.05 0.07 0.02 0.07 0.06 Â   discount factors 0.87 0.786 0.675 0.592 0.497 Â   Income 54,403.00 57,668.00 61,128.00 64,795.00 68,683.00 Â   Average EPS growth rate5.4% Â   Â   Â   Â   Â   Â   Â   Â   Â   Forecasting Forecasted Earnings Earning are the net proceeds that a firm gets from its operations. As such, Unilever PLC has reported increased retained earnings from the year 2008 to 2012. The growth in earning ranges from 2% to 7%. Therefore, to forecast future probable earning, the company can use a model of the form:Y= a+bxa, where Y is the forecasted earning, a represent the prior year’s earning, b is the average growth rate, x is the expected earnings. Forecasted Dividends Dividends are issued based on the company’s financial performance. As such, the directors pay dividends when companies make profits. Nevertheless, directors may resolve to pay divide nd from the retained earnings of the prior years.1 Based on the information derived from Unilever PLC financial statements, the company has consistently made profits from the year 2008 and the directors have paid dividends consecutively for all the five years. It is apparent that the dividends have been growing at a rate of 5% every year and as such, the 2012 dividend payout can be forecasted at the same rate to determine the probable dividend to be paid in future. Forecasted cash flows Cash flows are gross revenues that an organization receives from its operations. The information derived from the financial statements shows that Unilever cash flows have been on the increase. The forecasted cash flows can be given by a model of the form: Y=a+bx where Y is the forecasted cash flow, A is the cash flow from the prior year, b is the expected growth rate and x is the expected cash flows. Estimation of parameters of the model The parameters of the model include variables used to determine forecasted earning, dividends and the cash flow. These include; cost of capital, growth rate and any other cost incurred. To start with, the cost of capital is estimated based on the prevailing interest rates at which British financial institution were lending capital. The market