Advisory Services

Valuation and Analytics: Calculating value fairly and accurately

Depending on the nature of their business, many business owners may be unfamiliar with more complex accounting processes such as Restructuring, handling Real Estate, and Mergers & Acquisitions or M&A. Depending on their size or circumstances, financial institutions such as banks, brokerage firms, insurance companies, investment companies, and trust companies may also need assistance with such processes

Examples of scenarios where valuation may be required include:

  • Applying for loans
  • Buying and selling assets
  • Calculating taxes
  • Conducting audits
  • Division of assets according to a will 
  • Filing bankruptcy
  • Mergers and acquisitions

Because of the importance of valuation, many businesses, accounting firms, and regulatory agencies have come to place as much importance on the use of analytics as a means of improving the quality of the data used in valuation. 

Analytics also helps to detect fraud and the risk of errors in financial reporting because of its capabilities in enhancing the transparency, efficiency, and efficiency of valuation processes and financial disclosures. 

Thanks to data science development, analytics makes it easier for accountants to process and monitor large amounts of data during valuation activities. Analytics likewise provides both businesses and their accounting teams with insights that enable them to better comply with valuation regulations. 

Tangibles and intangibles.

A business’ assets for valuation include those that are tangible or physical fixed or current, such as stocks, bonds, vehicles, and equipment; and those that are intangible such as intellectual property, patents, logos, trademarks, and branding. In computing the value of tangible assets, an accountant also considers intangible assets and liabilities.

There are various methods for evaluating tangible assets in particular which include considering the purchase cost of the asset, its selling price, its expected (versus its actual) cost, or the value of its (base) stock. Intangible assets, on the other hand, are evaluated based on factors that may include tangible assets and the average return on those tangibles, as well as pretax earnings, book value, and market value.

How analytics help.

Analytics is increasingly being used in calculating fair value, which is the valuation of a business’s assets and liabilities that is documented in its financial records. The larger the business, the greater the need for analytics capabilities in helping to estimate fair value because of the risk of human error, fraud, insufficient skills or know-how, or management bias.

In valuation, analytics is particularly helpful in:

  • Gathering and improving the necessary data for fair value estimates
  • Identify loopholes in internal processes used in calculating fair value
  • Ensuring compliance which involves market data and information provided by management

The different types of analytics used for valuation and accounting as a whole include those used to classify and track changes in the data used for financial forecasts, and those used for making recommendations or flagging potentially imprudent business decisions.