Chartered Accountant · ICAI M.No. 153926 · FRN 136869W
NAV vs DCF
NAV values shares on the company’s net assets — simple, conservative. DCF values them on projected cash flows — suits growth startups but must be backed by realistic projections.
Where it's still used
For pricing fresh share issues, for FEMA pricing on foreign investment, and to support the price if questioned. A registered valuer or merchant banker prepares it.
Choosing NAV vs DCF, and the changes
The choice of method shapes the valuation, so it’s worth understanding the trade-off. NAV values the shares on the company’s net assets — assets minus liabilities — which is simple and conservative but undervalues an early-stage company whose worth is in future potential, not current balance-sheet assets. DCF values the shares on projected future cash flows discounted to today, which fits a growth startup but is only as credible as its projections; a DCF that assumes aggressive growth and then misses badly is exactly what used to invite an angel-tax challenge, so the assumptions must be realistic and documented. Rule 11UA was expanded in recent years to add further internationally accepted methods and to accommodate certain investor classes, and the valuer must be appropriately registered. Even after angel tax’s removal for new issues, 11UA-style valuations remain the reference for pricing share issues to residents, and a parallel FEMA valuation (by a merchant banker) governs issues to non-residents. The practical guidance is to match the method to the company’s stage, back a DCF with defensible projections, and date the report close to the transaction. Confirm the current 11UA methods and conditions, which have been amended.