The valuation of capital in Montenegro is regulated by the Law on Companies, the Law on Accounting, and the Regulation on the Methodology for the Valuation of Assets.
The purpose of valuing capital is to project the price at which a sale or transfer of ownership (participation in capital) transaction could take place. Another term for it is valuation of equity. It is often an official document that can be used for purposes such as:
- Decision-making in mergers and acquisitions transactions: the estimated value is compared with the investor’s offer;
- Tax purposes: for example, to determine capital gains tax on the sale of ownership;
- Making strategic decisions: all business activities should ultimately aim to maximize the company’s value.
The three primary approaches to valuing capital are:
- Cost approach;
- Market approach;
- Income approach.
The valuation process involves providing expert opinion on the value, as well as determining the value of assets based on a systematic approach, which includes the following activities:
- Physical and legal identification of the assets being valued (subject of valuation); Identification of rights over the assets being valued (documentation);
- Determining the purpose of the valuation (valuation purpose);
- Determining the effective date of the valuation (timeframe for the valuation);
- Collecting and analyzing data required for the chosen approach and valuation methods;
- Selecting and applying valuation methods;
- Drawing conclusions on value and preparing a report.