Methods of Disinvestment in India

It is important to note that there are three methods adopted by the government for the valuation of shares for disinvestment. They are:

1. Net Asset Method: This will signify the net asset of the enterprise as shown in the books of accounts. It shows the historical value of the assets. It does not reflect position of profitability.



2. Profit Earning Capacity Value Method: The profit earning capacity is usually based on the profits actually earned or anticipated.

3. Discounted Cash Flow Method: In this method, the future incremental cash flows are forecasted and discounted into present value by applying cost of capital rate. The method signifies the intrinsic value of the firm.

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