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CS Professional · Corporate Restructuring, Valuation and Insolvency · Overview of Business Valuation

A valuer is asked to value Orion Steels Ltd, which owns surplus land not used in operations and has pending litigation likely to cause a material outflow. Which treatment is most appropriate?

The valuer should add surplus land as a separately valued non-operating asset and adjust for the expected litigation outflow. Operating profit does not capture these items, so ignoring them misstates value; the land raises value while the probable liability reduces it.

  1. AIgnore both as they do not appear in operating profit
  2. BAdd the value of surplus land as a non-operating asset and adjust for the expected litigation liabilityCorrect
  3. CAdd the land but ignore the litigation until it is settled
  4. DDeduct the land and add the litigation amount

Explanation

Surplus land generates no operating earnings, so it is valued separately and added. A probable material liability reduces value available to owners and should be adjusted. Ignoring either distorts the value, and deducting land or adding litigation reverses the signs.

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