Valuation of Long-term securities

                                The price, an investor is willing to pay to purchase a specific asset or security would be the value of that asset or security. The valuation process links risk and return expected by the investor from its assets to determine the worth at a given point of time.

The key factors in valuation process are
(1) Expected returns in terms of cash flows together with their timing.
(2) Risk in terms of required returns. Risk denotes the chance that an expected return/cash flow would not be realized. the greater the risk,lower the value and vice versa.

Valuation of tangible assets
The assets of permanent nature,which are held for the purpose of running a business, are termed as tangible assets. for example: plant, machinery, land, building, furniture and fixtures, vehicles like car,truck,etc, raw material and finished goods.
Tangible assets are to be valued at he cost price less depreciation in their value by constant use.

Concepts of values

• Book value :- The value of an asset as shown in the books of account of business concern.
• Market value:- The  price which can be realized by selling the assets in open market.
• Intrinsic Value:- The actual value of a company or an asset based on an underlying perception of its true value including all aspects of business, in terms of both tangible and in tangible factors. This value may or may not be the same as the current market value. For this value investors use a variety of analytical techniques in order to estimate the intrinsic value of securities in hopes of finding investments where the true value of the investment exceeds its current market value. its is also known as economic value.
• Liquidation value:- it is also called as realization value. the value represents the price at which each individual assets can be sold if the business operations are discontinued.
• Replacement value:- The which is required to purchase a similar new assets from  the market  with old assets .
• Salvage value:- The value at which the asset might be sold as scrap,once it is discarded.
• Value of goodwill:- (i) Value of goodwill= Average profits*years' of purchase

                                           (ii)Value of goodwill= Super profits* Years, of purchase

{Normal profit =Capital invested*Normal rate of return/100

Super profit= Actual profits-Normal profits}

Also

[Goodwill=Capitalized value of average profits- capital employed

Capital employed= Assets-Liabilities profits

Capitalized value of average profits= Average profits-Capital employed]

• Fair value:- the average of book value, intrinsic value and market value is called the fair value.
• Cost price:- the price at which the asset was acquired,might have been purchased or constructed, it also includes the cost of installation.