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

Kaveri Foods Pvt Ltd is a profitable going concern with strong brand goodwill. Its net assets per books are ₹40 crore, but a valuer values it at ₹75 crore using projected cash flows. What best explains the gap?

The gap arises because business valuation estimates the worth of future earning capacity, including internally generated brand and goodwill, while book value reflects historical cost accounting that omits such intangibles. A going-concern cash-flow value can therefore exceed net assets per books.

  1. AValuation captures future earning capacity and intangibles that book values do not fully reflectCorrect
  2. BValuation always deducts goodwill from net assets
  3. CBook value includes unrecorded brand goodwill
  4. DThe valuer has wrongly used liquidation assumptions

Explanation

Cash-flow valuation looks forward at earning power and includes internally generated intangibles such as brand, which historical-cost accounts omit. Liquidation assumptions would normally lower the value, not raise it above book. Goodwill is not deducted in this way.

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