Financial instruments encompass financial contracts, investment instruments, complex loans, financial liabilities and all other assets and liabilities that involve some degree of uncertainty or contingency.
Calipro Advisors has extensive experience in “valuing myriad of financial instruments” like preferred and common stock and options/warrants, performance options, growth shares, convertible notes, etc.
At initial recognition, an entity needs to measure a financial asset or a financial liability (except for trade receivables) at its fair value plus or minus transaction costs.
Subsequently, a financial asset can be measured at amortised cost or fair value, subject to certain conditions provided under Section 4.1 of IFRS 9. The subsequent measurement of a financial liability is carried out in accordance with Section 5.3 of IFRS 9.
An example would be periodic valuation of earn-outs or contingent consideration that typically form a part of purchase consideration in any merger or acquisition. Since these earn-outs are based on performance or other metrics, they contain an element of uncertainty and need to be periodically revalued under IFRS 13 until they are paid out in their entirety. Refer to our page on purchase price allocation and case study on earn-out valuation to gain more insights on valuing earn-outs.
Contact us to learn more about our in-house tool on Monte Carlo simulations to better understand what goes into building complex valuation models.