Chartered Accountant · ICAI M.No. 153926 · FRN 136869W
DCF: future-looking
DCF values a business on what it will earn in the future — you project its cash flows over several years, pick a discount rate reflecting the risk, and bring them to a present value. It suits startups precisely because their value lies in future growth, not current assets. It must be done by a merchant banker for many purposes.
NAV: book-based
NAV takes the balance sheet — assets minus liabilities, divided by shares — a historical, asset-based figure. It works for asset-heavy or mature businesses, but understates a startup with little on its books yet big prospects. This is why a profitable-on-paper-poor startup looks worthless on NAV but valuable on DCF. Which method is permitted depends on the rule being applied — see Rule 11UA.
A worked example
Example: a SaaS startup has ₹20 lakh net assets but is growing fast. NAV might value it at ₹20 lakh; a DCF on its projected subscription revenue could support ₹5 crore. For its funding round it uses DCF; a holding company with only property might use NAV. The method must fit the business and the rule. Our team can arrange the right valuation.