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Assessing the value of a company is necessary in a variety of situations when: buying an enterprise or a large block of its shares, attracting investors, analyzing the quality of management, obtaining loans. The economic literature describes in detail the existing methods for assessing the value of a company, however, in their practical application, serious mistakes are often made that entail negative consequences. In this article, we will look at the most common mistakes in assessing the value of a company, as well as ways to minimize them.
Wrong choice of approach to cost determination
In world practice, there are three main approaches to determining the value of a company: profitable, comparative and costly. Each of them is based on different points of view on the formation of business value. The results obtained using these approaches are reconciled by calculating a weighted average. In this case, the greatest weight should be assigned to the approach, which uses the most complete and reliable information.
Example 1
Suppose, to assess the value of the holding company "X" as the main approach was used income approach... The activity of this company is to manage blocks of shares. The bulk of revenue is generated by individual production companies that are part of the holding. In this case, the predominant part of their net profit is reinvested. Based on the performance results, the income of the parent company turned out to be small, which influenced the result of applying the approach. Since this approach was used as a priority, the calculated value of the company turned out to be underestimated.
To avoid errors in calculating the value of companies, it is imperative to take into account the compliance of the applied approaches with the purposes of the assessment and the degree of reliability of the information used in each of the approaches.
First of all, when choosing a priority approach, one should take into account a way to benefit a business owner... If the owner makes a profit directly from the sale of goods or services, then the income approach will be the priority. For asset management companies like the example above, it makes more sense to use costly approach.
Through income approach it is possible to justify the value of the business, but not to carry out its initial assessment, which is discussed in the negotiation process. Cost approach also does not allow to determine the exact amount, since the value of most assets is understated relative to the costs of creating similar assets. Comparative approach preferable when evaluating enterprises, transactions with shares or shares of which are regularly carried out on the exchange or over-the-counter market. However, when using it, there is also a high probability of errors. The fact is that every business has many unique characteristics, so complete and reliable databases of real sales are needed, which most appraisers do not have.
Each activity should use any of the above principles for choosing one or another approach to determining value, except those that obviously cannot be applied in specific conditions. At the same time, the following should be recognized: in practice, priority is given to data obtained using the income approach (in the ready-made business market, the investor pays for income).
Note. The underlying market information used in each approach does not correlate with the underlying information used in other approaches, and therefore each approach gives a unique result.
Errors when using the income approach
Often in our country, the income approach is applied incorrectly. The main difficulty in using this approach lies in the fact that enterprises apply various schemes to minimize tax liabilities, as a result of which the company's statements do not reflect its actual financial position. Almost every company has some way of avoiding taxes, which is problematic to take into account when assessing. When analyzing the income of an enterprise, first of all, it is necessary to find out the real selling price of products that are not on the balance sheet, and when analyzing expenses, take into account the actual cost of purchasing raw materials and materials, as well as real wages. In this case, the accuracy of the assessment will depend on how well the assessor understands the status quo. Therefore, it will be beneficial for business owners to provide the appraiser with additional information that goes beyond the official one. Otherwise, the value of the company will be significantly underestimated.
Company value determined by income method, shows how much the buyer will have to pay in order for the income from the transaction to be equal to his costs. This amount is the upper limit from which to bargain. When calculating the final price, the reasons why the enterprise may not reach this limit are discussed, and depending on the significance of these reasons, the price is reduced.
The income approach cannot be applied in relation to unprofitable enterprises. Exceptions may be:
- new companies that sometimes use projected profit margins;
- unprofitable enterprises, considered taking into account the benefits that a specific investor can get from their ownership (synergy effect, more rational use of certain assets, etc.).
It should be borne in mind that the assessment using the income approach is based not only on the income of the enterprise, but also on other economic benefits received by the owner from owning the business.
In addition, in practice, problems often arise associated with calculating the value of a business. discounted cash flow method... Everywhere, many companies, due to the lack of complete information, use a simplified version of the calculation of cash flow, which leads to a distortion of the estimate. For example, a company's cash flow is often taken as its net profit after tax and amortization accrued over a certain period. At the same time, the need for financing the company's current assets may not be taken into account, capital costs are forgotten, and atypical one-time income and expenses that have arisen in the current period may be included in profit, which generally distorts the amount of cash flow and the result of the assessment.
Measure a business using a metric reduced net profit possible, but not in every industry. For example, in the jewelry industry, the amount of working capital is twice the volume of capital investments, and if you do not take into account the change in working capital in the company's cash flow, you can get a result that is far from real. However, when calculating the future value of, for example, a consulting company, a simplified approach may be justified.
Thus, when calculating the value of a company using the discounted cash flow method, it is necessary to strictly follow the methodology for calculating cash flow accepted in international finance practice. If it is impossible to obtain reliable information about all components of the company's cash flow, other approaches to valuation should be used, for example, comparative.
Note.Availability of information on the structure of cash flow of similar enterprises can help to calculate the approximate value of cash flow for the evaluated company.
It is very common in valuation practice to encounter errors associated with incorrect forecasting of future cash flows. Often, when forecasting revenues, business sellers tend to talk about high sales growth rates, without mentioning that the company has poorly developed strategy, marketing and assortment management. In addition, companies with a pronounced seasonality of activity can either underestimate or overestimate their need for working capital in certain periods. This is due to the fact that the balance sheet data at the beginning and end of the fiscal year are used to calculate the change in the need for financing the production and financial cycle. Meanwhile, during the New Year and summer holidays in many sectors of the consumer market there are recessions or, conversely, peaks of activity. Accordingly, the levels of inventories, receivables and payables during this period are not representative of the normal state of their business.
To avoid errors in calculating the forecast cash flow, it is necessary to check the forecasts of the state of the markets in which the company operates. The amount of income expected to be received in future periods should be clearly linked to a reasonable understanding of the volume of sales and the level of prices for the relevant products (services) in these periods. Expedient construction of a scenario forecast of income... If the business of the evaluated company is subject to strong seasonal fluctuations, then it is recommended to assess the change in the need for financing the production and financial cycle on a monthly basis.
Errors when using the comparative approach
Comparative approach is a general method for determining the value of a company and (or) its equity capital, within which one or more methods are used, based on a comparison of a given company with similar investments already sold. This approach includes the capital market method, the transaction method and the industry ratio method.
Comparative approach is a procedure for comparing actual sales of similar items.
This assessment approach is based on substitution principle, according to which, in the presence of several goods or services with a relatively equal consumer value (utility), the most widespread and in demand will be the goods with the lowest price. The comparative approach is based on the collection of information about similar offers and sales for subsequent comparison, which allows you to determine the necessary market adjustments for significant factors. Sales information is compared with the object under consideration according to the material characteristics identified in this object. The peculiarity of using this approach in relation to enterprises is that when buying and selling a company, the buyer receives a minimum of information about the transaction. Accordingly, even if the cost of the sold analogue enterprise is known, it is difficult to say what specific factors formed it, whether there were any "pitfalls" and mutual obligations of the seller and the buyer, hidden from prying eyes. Also, this approach has limited application due to the uniqueness and specificity of enterprises. The problem is that, unlike most other products, an enterprise cannot be accurately compared - revenues depend on the unique characteristics of the company, few companies share enough economic traits in common.
We have to admit that it is especially difficult for a business to find relevant information about the cost of an analogue. It is easy to make a mistake when estimating the value of your business at the selling price of a similar neighboring business. Even if the deal price and total sales are known, other key data (such as the profitability of a business) are often not available. And small variations in this indicator can significantly change the final price.
Comparative approach to assessment involves the multiplication of certain indicators of comparable companies (sales volumes, profit, net assets or non-financial performance indicators) by a multiplier that reflects the ratio between the indicator under consideration and the company's value. The multiplier can be industry-specific or calculated for individual peer companies.
Note. Currently, the owners of domestic companies often use the multipliers used in Western markets. But, as the experience of domestic appraisal firms shows, they do not work in Russia.
Thus, the value of telecommunication companies can be determined on the basis of data on the number of telephone lines owned by the company. While cellular companies, when buying mobile operators, first of all take into account the number of purchased subscribers.
Example 2
One of the existing mobile operators on the Russian market widely uses such an indicator as the cost of one subscriber (the transaction amount per one subscriber by the acquired company) as the main characteristic of the company's valuation. The motivation for using this indicator is as follows. Firstly, the indicator is simple and convenient, and secondly, it reflects the structure of the customer base of cellular companies, which is quite homogeneous and in the overwhelming majority consists of individuals. In addition, the costs of connecting a subscriber to a mobile operator are the same. While the client base of wireline operators is much more heterogeneous. Here, the main subscriber and the main source of income is business sector... In addition, the cost of connecting a subscriber seriously depends on its location, method of connection, etc. So, in order to connect a new area (if we are talking about the residential sector), you need to lay several kilometers of cable, install a station, build a distribution network, negotiate with a developer, etc. Therefore, such an indicator as the cost of one subscriber is much less suitable for characterizing the acquisitions of wire communication operators. In order to realistically assess the acquisitions of wireline operators, it is necessary to use the discounted cash flow method as a basis and be based on a business model designed for 5-10 years.
Within the framework of the comparative method, the main industry multipliers are estimated: annual profit, capacity for the production of finished products, revenue. Then the estimate obtained using the multiplier is adjusted for certain premiums (discounts) per:
- urgency of the transaction;
- company opacity (highest);
- quality of management;
- geographical position;
- marketing positions;
- legal structure.
To assess the premiums (discounts), lawyers and tax consultants are hired, that is, specialists on specific risks. As a result of the correction, the final price may differ from the initial one by more than 20%.
Example 3
Let's say a decision has been made to use a comparative approach to assess the value of small businesses (less than $ 500,000). At the same time, the appraiser has a detailed database at his disposal, which includes information (more than 350 such companies) that have changed their owners over the past three years. This approach will give good results: in 80% of cases, a business is sold for a certain price. However, if the database contains less than 100 analogs, it makes no sense to use it. In this case, the error rate is too high.
Finding a suitable analogue for a medium-sized and non-public company is a problem in developed markets as well. Outside the stock market, the information is fragmentary, it is really possible to use information about 5-6 acquisitions. It is a stretch to estimate the exact value of the company based on the price multiplier obtained. So you can get only a general idea of \u200b\u200bthe order of its values.
Note. The comparative approach can only be used by those companies that have a wealth of experience in selling existing companies (and only to determine the return on investment).
Thus, in order to avoid mistakes when using the comparative approach, it is necessary to assess the homogeneity of the industry in terms of the size of enterprises, their technical equipment and financial condition. When choosing indicators for comparison, you need to check whether there is a connection between them and the capitalization of companies in the industry or their selling prices (based on data on completed transactions).
Errors when using the cost approach
Cost approach(asset-based) - a general method of determining the value of an enterprise and (or) its equity capital, which uses one or more methods based directly on calculating the value of the company's assets less liabilities.
Evaluation using the cost approach involves the use of various methods:
- comparative unit cost method- property appraisal based on the use of single adjusted aggregated indicators of costs for the creation of analogues. Its essence is as follows: for the object to be evaluated, an analogue object is selected that is very similar to the one being evaluated in almost all characteristics, materials used and manufacturing technology. The unit cost of the analogue object is multiplied by the number of units of the evaluated object;
- cost method of enlarged items is to assess the property based on the value of the cost of creating its main elements The method uses data on the cost of various elements, that is, the constituent parts of a building or structure (itemized costs). The calculation of itemized costs includes, for example, breaking down a building into its component parts, establishing the value of the average costs for these parts;
- quantitative analysis method consists in evaluating an object based on a full cost estimate for its reproduction. For example, the cost of construction is determined by summing up all the costs of erecting or installing the component parts of the structure (in this case, indirect and direct costs must also be taken into account). In order to apply this method, it will be necessary to draw up a list of all materials and equipment, calculate the labor costs required to install each element, take into account indirect, overhead costs and the developer's profit.
In practice, when applying quantitative analysis method Errors can occur due to incorrect selection of data on the value of comparison units in buildings that do not correspond to the type of object of assessment. This method is quite laborious, its application is based on compiling a list of all materials and equipment, calculating the labor costs required to install each element, which requires the involvement of qualified estimators;
- index method consists in determining the replacement value of the assessed object by multiplying the book value by the corresponding revaluation index. The indices for the revaluation of fixed assets are approved by the RF Government and are periodically published in the press.
The main feature of using the cost approach for enterprises is that the book value of the company's assets and their actual value differ greatly. Therefore, when analyzing assets, it is necessary to evaluate them at market value. This generally increases the value of assets significantly. This primarily concerns machinery and equipment. In many small companies, a significant proportion of fully functional equipment has zero residual value, and the market value of this equipment can be quite significant. When analyzing stocks, it is necessary to discard their illiquid part, and when assessing accounts receivable, you need to discard the hopeless one.
Valuation reliability costly approach largely depends on the completeness and reliability of economic information from the sub-industry to which the evaluated object belongs (the economic structure of prices for the products of the sub-industry, the existing indicators of profitability of sales, some cost standards, etc.).
Errors when calculating discounts
By purchasing less than 100% of the shares, the owner receives a certain amount of rights (property rights and rights to manage the company), which are limited in comparison with the rights of the sole owner of the business. This means that the buyer cannot fully control the business, so he has the right to demand a reduction in the price of such a package in comparison with the cost of 100% of the company's equity capital. In this regard, when calculating the value of shareholdings, a discount for insufficient control is applied.
The reason for the application of the discount for insufficient liquidity is the high risk of non-receipt of dividends and other income from the ownership of securities (shares), caused by internal problems of the company or the state of the industry.
It is difficult to determine the exact amount of such discounts, since it is not always possible to obtain complete information on the level of corporate governance of companies and on the policy towards minority shareholders.
When non-controlling stakes are sold on the open market (a ready-made business market that uses non-equity mechanisms to alienate companies), the discount can be very high - up to 90%. For this reason, it is recommended that either the entire business or a controlling stake be put up for sale. Otherwise, the likelihood of a successful search for a buyer is very low.
It is important. When preparing transactions related to the purchase and sale of blocks of shares (stakes in the authorized capital) of a company, it is necessary to analyze in detail the restrictions on the rights of the owner of such a block, determined by legislation and the charter of the company.
Considerable attention should be paid to the analysis of the possibility of selling the block of shares. It is necessary to check the existence of transactions with the company's shares in the existing trading systems, to assess the potential attractiveness of shares or shares in the OTC market, as well as the transparency of the corporate governance system and the risk of non-receipt of income. Based on the results of the analysis, it is advisable to determine the discounts for insufficient liquidity and the degree of control that are acceptable in this case. Moreover, in the practice of appraisal activities, such discounts are applied sequentially: first, a discount for control, then - for insufficient liquidity.
There are certain levels of control: if 75% (or more) of voting shares are acquired, then the buyer acquires virtually complete control over the situation in the company and discounts are hardly appropriate. The second level (25%) is a blocking stake, which makes it possible to reject decisions that do not suit you. In our opinion, if we are talking about buying a block of shares in excess of 25%, the discount will be very small or not at all.
Currently, there is no common method for calculating the discount. Preferred shares, as well as small blocks of shares that do not allow voting and are less liquid, must be traded at a 20-25% discount (excluding the cost of the dividend package). But since the dividend yield on common and preferred shares is different, this discount needs to be adjusted. The amount of the adjustment is four times the difference between the dividend yield of preferred and common shares (assuming the expected difference persists in the coming years). This premium could partially offset the discount associated with insufficient liquidity and control.
You should also pay attention to what stakes other shareholders have. If there are no owners of more than 25% of the shares among them and the probability of their appearance is low, there is no reason for concern.
Another issue that needs to be addressed is company reputation... In Russia, one can already quite clearly understand in which companies the rights of minority shareholders are recognized, and in which they are not.
Consider the mistakes that often arise when evaluating the value of small companies.
Errors in evaluating the value of small companies
This type of error can be divided into three groups.
The first group of errors associated with the nature of enterprises. For example, small companies are owned by a rather narrow circle of people who are often united by either family or friendship. This circumstance can be decisive in building a business management system, its reporting. Such enterprises suffer from the absence of many documents that allow assessing their real profit, do not have strategic development plans, and the very need to disclose objective information about their activities for such companies.
The real results of the enterprise are reflected in its management reporting. Business brokers are focused on its data in their appraisal activities. From the standpoint of Russian legislation, the assessment carried out in this way cannot be considered fully legitimate:
- first of all, the consulting company acts as a stakeholder: it determines the price at which the business can actually be sold;
- secondly, most entrepreneurs are not interested in voicing information about their real income.
Therefore, the results of the assessment and the indicators on which it is based are indicated in the conclusions of business brokers only as an expert opinion.
Since the value of a business is based on how much profit it can bring under the guidance of a potential buyer, accurate forecasting becomes hypothetical. Small companies are extremely volatile as profit producers. Consequently, there are no guarantees that the business will develop and function successfully after a change of ownership. In practice, there are many examples of the company's sales and revenues increasing several times after the change of owner-manager. And sometimes you have to admit that successful companies have failed in the past.
Note. Business brokers value a business at its present use, taking into account the revenues it generates here and now (this figure is discounted). At the same time, the company's prospects are taken into account, but only as one of the factors affecting its value.
The second group of errorsarising in the assessment of an operating business is due to an attempt to apply some popular formulas to this process. The most common here are the following error types:
- incorrect comparison error - it is dangerous due to the fact that many experts consider this method the most convenient for evaluating operating enterprises. The problem is that, unlike most other goods, a business as an object of purchase and sale cannot be accurately compared - revenues depend on the unique characteristics of the company, few companies have a sufficient number of common economic features;
- odds error- entered domestic practice from Western textbooks, the methods described in which are rarely applicable in Russian conditions. For example, some British consultants suggest defining the value of a supermarket according to the “cost of inventory + monthly sales” scheme. The cost of a cafeteria and small restaurant in the United States usually equates to 3-4 months' sales. However, in Russia, business profit is not directly related to the turnover (this indicator is individual for each enterprise).
At the moment, the development of the main coefficients that can be used in business valuation. This is one of the factors that can confirm the correctness of the valuation of the company carried out by the income method;
- addition error- occurs when the value of a company is determined as the sum of the values \u200b\u200bof its assets. The difficulty here arises when evaluating goodwill - an intangible asset that can be the most valuable of all the assets of an enterprise. The inapplicability of this approach can be illustrated by the example of enterprises that represent the "cash flow". Let's say one of the largest Russian sellers of office printing equipment is up for sale. The value of its assets is rather low, but the availability of rights for exclusive distribution of products of leading Western manufacturers and a permanent client base makes the company's value (450 thousand dollars) quite consistent with the requirements of investors. If the company put up for sale owns real estate, then the latter is assessed separately. This indicator is added to the value of the business received income method... This is explained by the fact that real estate is currently acting as a highly liquid asset. A similar scheme is used if the company being sold owns expensive high-tech equipment. In addition, a similar model is applied to the sale of trading companies with significant stock balances. This raises the question of determining their liquidity. Therefore, one has to turn to the use of certain coefficients.
TO the third group of errors only one applies - subjectivity error (occurs most often). A small business is often a kind of continuation of its owner, who has a certain emotional attachment to him, which makes it difficult to objectively assess the company and leads to overpricing. Often, the seller includes non-economic factors in the cost of the business: his own, not confirmed by any figures, idea of \u200b\u200bthe company's place in the market, his expectations for the future, etc. Therefore, the seller of this business should not try to independently determine its final cost. Timely contacting specialists will allow you to more effectively carry out the sale and avoid disappointments in the process of finding an investor.
Summary
In conditions of financial instability in the market, it is becoming more difficult to assess the value of a business. The existing methods are far from perfect, so financiers have many problems associated with the evaluation process. Using the accumulated experience and our own practice in evaluating companies, you can significantly reduce the risk of errors in the future.
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1. When analyzing expenses in the discounted cash flow method, one should take into account:
2. What method is used in the valuation of a business when the value of an enterprise upon liquidation is higher than that of an existing one?
3. Does the size of the enterprise influence the level of risk?
4. The profitability of a business can be determined using:
5. The appraiser indicates the date of appraisal of the object in the appraisal report, guided by the principle:
6. What is the estimated multiplier similar to the unit price of income?
7. The “supposed sale” method is based on the following assumptions:
8. What method will give more reliable data on the value of the enterprise, if it has recently emerged and has significant tangible assets?
9. The cost of the appraisal object, determined on the basis of its profitability for a specific person, is the cost:
10. If the discounted cash flow method uses a debt-free cash flow, then the investment analysis examines:
11. The risk caused by factors of the internal environment is called:
12.What method can be used to determine the value of a minority stake:
13. What valuation method is used to assess the results of business restructuring?
14. For debt-free cash flow, the discount rate is calculated:
15. Is it true: for cases of increasing cash flows over time, the capitalization ratio will always be greater than the discount rate?
16. To determine the value of a non-controlling interest in an open company, it is necessary to subtract the discount for non-controlling interest from the value of the controlling interest:
17. When the growth rate of the enterprise is moderate and predictable, then it is used:
18. What is the transaction method based on:
19. What components are included in the investment analysis for calculations using the cash flow model for equity?
20. Stocks valued at the market value standard are almost always:
21. Which of the following is not a cost standard:
22. The multiplier is the ratio between the selling price and any financial indicator
23. Market value can be expressed in:
24. The discount rate is:
25. The calculation of the residual value is required in:
Tasks
1. It is known that the company's revenues in the last forecast year will amount to 650,000, the discount rate is 20%, and the long-term growth rate is 110%. Determine the residual value. Indicate the solution.
2. It is known that the current assets of the enterprise are 200,000 at the beginning of the period and 270,000 at the end, the amount of assets is 700,000, revenue is 1,300,000. Determine the turnover of current assets, in days. Indicate the solution.
3. It is known that the company's revenues expected to be received in the forecast period are 750,000 in the 1st year, 350,000 in the 2nd year, 500,000 in the 3rd year, and 550,000 in the 4th year. , residual value - 1,200,000, discount rate - 8%. Determine the present value of the enterprise. Indicate the solution.
4. It is known that the average value of the price / profit multiplier for several companies is 6.5; profit of the estimated company 80,000; revenue 1,000,000. Determine the value of the estimated company. Indicate the solution.
5. Determine the value of the enterprise using the income approach if it is known that income in the first forecast year was CU300,000, in the second - CU550,000, in the third - CU700,000, long-term cash flow growth rate 5%. In addition, it is known that the risk-free rate of return is 12%, the coefficient is 0.9, and the market premium is 5%.
Indicate the solution.
AUTONOMOUS NON-PROFIT EDUCATIONAL ORGANIZATION
HIGHER PROFESSIONAL EDUCATION
"INDUSTRIAL INSTITUTE"
Department of Real Estate Appraisal
DISCIPLINE EXAMINATION MATERIALS
"BUSINESS ASSESSMENT AND FIRM VALUE MANAGEMENT"
department of Real Estate Appraisal,
Head department ___________ /A.A. Belan /
APPROVED
Reviewed and approved at the meeting
department of Real Estate Appraisal,
economics and finance,
protocol No. ___ dated "_____" __________ 201_
DISCIPLINE QUESTIONS BUSINESS EVALUATION AND FIRM VALUE MANAGEMENT
1 Business, enterprise, firm, capital as objects of assessment.
2 Features of business, enterprise, firm as objects of assessment.
3 Subjects of assessment. The need and purpose of business valuation.
4 Cost. Types of values \u200b\u200bdetermined during the assessment. Factors affecting the estimated value.
5 Principles of business valuation.
6 Approaches and methods used for business valuation.
7 Provisional estimate of cash flows. The main functions of the monetary unit and their economic meaning.
8 Time estimate of monetary capital. Circulating functions of the monetary unit and their economic meaning.
9 Information system used in the assessment process. Information requirements and organization. Inside information required for the assessment and its main sources.
10 External information needed for the assessment and its sources.
11 Inflationary adjustment of reporting in the assessment process. Purpose, ways of adjustment.
12 Normalization of accounting statements in the assessment process. Purpose and directions of normalization of financial documents.
13 Transformation of accounting statements.
14 Calculation of relative indicators in the assessment process. The main groups of indicators.
15 The essence of the income approach to the valuation of an enterprise (business) using the method of discounted cash flows of the income approach.
16 Cash flows. Cash flow models. Determination of the duration of the forecast period.
17 Retrospective analysis and forecast of gross sales proceeds. Analysis and forecast of expenses and investments.
18 Methods for calculating the amount of cash flow for each year of the forecast period.
19 Discount rates. Methods for determining the discount rate. Calculation of the current values \u200b\u200bof future cash flows in the forecast period. Making final amendments.
20 The economic content of the profit capitalization method of the income approach and the main stages of its application. Analysis of financial statements.
21 Capitalization rate and models for its calculation.
22 General characteristics of the comparative approach to business valuation and its basic provisions. The main methods of business valuation by a comparative approach.
23 Basic principles for the selection of enterprises - analogs when evaluating a business using the method of the company - analog (capital market method). Distinctive features of financial analysis with a comparative approach.
24 Characteristics and calculation of price multiples when evaluating a business using the method of an analogue company (capital market method).
25 Assessment of the value of a business (enterprise) by the method of transactions and the method of industry specifics.
26 The essence of the cost approach in business valuation. Basic methods of the cost approach. Stages of calculating the value of a business (enterprise) using the net asset value method.
27 Determination of the reasonable market value of the real estate of the enterprise by the income approach.
28 Determination of the reasonable market value of real estate by a comparative (market) approach.
29 Determination of the reasonable market value of real estate property by the cost approach.
30 Assessment of the market value of land. Essence, methods.
31 Estimation of the market value of machinery and equipment using a cost-based approach.
32 Assessment of the market value of machinery and equipment by a comparative (market) approach.
33 Assessment of the market value of machinery and equipment using an income approach.
34 Assessment of the value of intangible assets and their groups. Essence, features.
35 Application of the income approach in the valuation of intangible assets.
36 Application of the cost approach in the valuation of intangible assets.
37 Assessment of the market value of financial investments: bonds, shares.
38 Assessment of inventories, prepaid expenses, accounts receivable, cash.
39 Scope of the residual value method. Stages of calculating the residual value.
40 Estimating the cost of controlling and non-controlling interests.
41 Report on the assessment of the business of enterprises and the requirements for it.
APPROVED
Reviewed and approved at the meeting
department of Real Estate Appraisal,
economics and finance,
protocol No. ___ dated "_____" __________ 201_
Head Department ___________ / A.A. Belan /
TEST ASSIGNMENTS FOR CROSS-CUTTING CONTROL FOR DISCIPLINE BUSINESS EVALUATION AND FIRM VALUE MANAGEMENT
Option 1
1. When analyzing costs in the DCF method, one should take into account:
a) inflationary expectations for each cost category;
b) prospects in the industry, taking into account competition;
c) interdependencies and trends of past years;
d) the expected increase in product prices;
2. The value of the appraisal object in case the appraised object must be alienated in a period shorter than the usual exposure period of analogues is:
a) replacement cost;
b) liquidation value;
c) book value;
d) investment value;
e) utilization cost.
3. Does the size of the enterprise influence the level of risk?
4. The appraiser indicates the date of appraisal of the object in the appraisal report, guided by the principle:
a) compliance;
b) utility;
c) marginal productivity;
d) changes in value.
5. The "supposed sale" method is based on the trace. assumptions:
a) in the residual period, the values \u200b\u200bof depreciation and capital investments are equal;
b) in the residual period, stable long-term growth rates should be maintained;
c) the owner of the enterprise does not change;
6. What method will give more reliable data on the value of the enterprise, if it has recently emerged and has significant tangible assets?
a) method of residual value;
c) income capitalization method.
7. If the discounted cash flow method uses a debt-free cash flow, then the investment analysis examines:
a) capital investments;
b) net working capital;
c) change in the balance of long-term debt;
8. What is the capital market method based on:
a) on the assessment of minority stakes in similar companies
b) on the assessment of controlling stakes in similar companies;
c) on the company's future income.
9. Which of the following methods are used to calculate the residual value for a going concern?
a) Gordon's model;
b) the "supposed sale" method;
c) at the cost of net assets;
10. For debt-free cash flow, the discount rate is calculated:
a) as the weighted average cost of capital;
b) the cumulative construction method;
c) using a capital asset valuation model;
11. Is the statement true: for the case of a stable income level for an unlimited time, the capitalization ratio is equal to the discount rate?
12. When the growth rate of the enterprise is moderate and predictable, then it is used:
a) discounted cash flow method;
b) income capitalization method;
c) the method of net assets.
13.What method can be used to determine the value of a non-controlling stake:
a) the method of transactions;
b) the method of the net assets value;
c) capital market method.
14. Transformation of reporting is mandatory in the process of evaluating an enterprise.
A) Gordon's model;
7. How true is the statement that it is advisable to add the value of assets that are not involved in this business to the value of the enterprise, calculated as the current value of expected income:
A) true;
8. Does the size of the enterprise influence the level of risk:
9. Which method will give more reliable data on the value of the enterprise, if it has recently emerged and has significant tangible assets:
b) the method of the net assets value;
10. The risk caused by environmental factors is called:
a) systematic;
11. Is the transformation of reporting required in the process of evaluating an enterprise?
12.What method can be used to determine the value of a minority stake:
c) capital market method.
13. To determine the value of a smaller stake in a closed company, the discount for insufficient liquidity must be deducted from the value of the controlling stake:
14. The multiplier is the ratio between the selling price and any financial indicator:
15. For cash flow for equity, the discount rate is calculated:
d) answers b) and c) are correct;
16. The "estimated sale" method is based on the following assumptions:
a) in the residual period, the values \u200b\u200bof depreciation and capital investments are equal;
b) in the residual period, stable long-term growth rates should be maintained;
c) the owner of the enterprise does not change.
d) all answers are wrong.
17. To determine the value of a freely realizable minority share, it is necessary to deduct the discount for non-controlling interest from the value of the controlling interest:
18. Which of the following is not a business valuation standard:
d) investment value;
19. The discount rate is:
b) the expected rate of return for alternative investment options.
20. Is it true that systematic risk can be diversified through good company management?
b) wrong.
Minority stake -does not allow direct participation in the management of the company
Majority shareholding -
Discount rate -the rate of return (profitability) used in discounting, taking into account the risks associated with receiving cash flows (income).
Risk-free rate -the interest rate on the investment with the lowest risk, i.e. the minimum income that an investor can receive on his capital by investing in the most liquid assets.
Control Participation Award -a monetary (absolute or relative) expression of the advantage accruing from majority ownership over non-controlling interests.
The rate of return (profitability) -the ratio of the amount of income (losses) and (or) changes in value (realized or expected) to the total amount of invested funds.
Costly approach -a method of property valuation based on the determination of the cost of the creation, modification and disposal of property, taking into account all types of wear and tear.
Capital market method-based on the use of stock prices of similar companies, formed. open stock market
Valuation steps under the comparative approach:
1. collection of the necessary information;
2. selection of semiconductor analogs;
3. Making amendments;
4.pricing
Task.
Option no.
21. The economic principle, according to which the maximum value of an enterprise is determined by the lowest price at which another enterprise with equivalent utility can be acquired, is called:
a) the principle of substitution;
22. Which of the following factors do not affect the value of the enterprise?
f) all factors affect the value of the valuation of the enterprise.
23. Which of the following does not meet the definition of market value?
c) the sale is carried out on credit with a deferred payment;
24. Which of the following factors should be taken into account in determining the weight given to each of the valuation methods to obtain an agreed value:
d) all of the above factors;
25. Equity capital of the company is equal to:
c) total invested capital less liabilities.
Tests
Option 1.
d) the expected increase in product prices.
2. What method is used in assessing a business when the value of an enterprise at
liquidation is higher than the current one:
4. The profitability of a business can be determined using:
a) reporting normalization;
b) financial analysis;
c) investment analysis;
5. The appraiser indicates the date of the appraisal of the object in the appraisal report, guided by
principle:
a) compliance;
b) utility;
d) changes in value.
6. What is the estimated multiplier calculated similarly to the price
units of income:
a) price / cash flow;
b) price / profit
c) price / equity.
7. The “supposed sale” method is based on the following assumptions:
a) in the residual period, the values \u200b\u200bof depreciation and capital investments are equal;
rates of growth;
8. Which method will give more reliable data on the value of the enterprise, if it
a) method of residual value;
b) the method of the net assets value;
c) income capitalization method.
9. The cost of the cost of reproduction of the property in modern conditions and in accordance with modern market preferences is the cost:
a) substitution;
b) reproduction;
c) balance sheet;
d) investment.
10. If the discounted cash flow method uses a debt-free
a) capital investments;
11. The risk caused by environmental factors is called:
a) systematic;
b) unsystematic;
c) another answer.
12.What method can be used to determine the value of a minority stake
a) the method of transactions;
b) the method of the net assets value;
c) capital market method.
13. Transformation of reporting is mandatory in the process of evaluating an enterprise.
14. For debt-free cash flow, the discount rate is calculated:
15. Is the statement true: for the case of a stable level of income for an unlimited time, the capitalization ratio is equal to the discount rate:
16. To determine the value of a freely realizable smaller share, it is necessary
deduct the non-controlling interest discount from the cost of the controlling interest:
17. When the growth rate of the enterprise is moderate and predictable, then it is used:
c) the method of net assets.
18. What is the transaction method based on:
a) on the assessment of minority stakes in similar companies
a) investment;
c) demand for products.
20. To determine the value of a smaller stake in a closed company, it is necessary to deduct the discount for insufficient liquidity from the value of the controlling stake:
21. Which of the following is not a cost standard:
a) market value;
b) fundamental value;
c) liquidation value.
23. Market value can be expressed in:
a) a combination of cash and illiquid securities;
b) monetary units;
c) monetary equivalent.
24. The discount rate is:
a) the current rate of return for alternatives
investments;
b) the expected rate of return for alternative investment options.
a) capital market method;
Option 2
1. When analyzing expenses using the discounted cash flow method, one should
a) inflationary expectations for each cost category;
b) prospects in the industry, taking into account competition;
c) interdependencies and trends of past years;
d) the expected increase in product prices;
2. The value of the property, considered as the total value
the materials contained therein, net of disposal costs, is:
a) replacement cost;
b) the cost of reproduction;
c) book value;
d) investment value;
e) utilization cost.
3. Does the size of the enterprise influence the level of risk:
4. The appraiser indicates the date of the appraisal of the object in the appraisal report,
guided by the principle:
a) compliance;
b) utility;
c) marginal productivity;
d) changes in value.
5. The "supposed sale" method is based on the following assumptions:
a) in the residual period, the amount of depreciation and capital investments
b) in the residual period, stable long-term
rates of growth;
c) the owner of the enterprise does not change.
6. Which method will give more reliable data on the value of the enterprise, if it
recently emerged and has significant tangible assets:
a) method of residual value;
b) the method of the net assets value;
c) income capitalization method.
7. If the discounted cash flow method uses debt-free
cash flow, then the investment analysis examines:
a) capital investments;
b) own working capital;
c) change in the balance of long-term debt.
8. What is the capital market method based on:
a) on the assessment of minority stakes in similar companies;
b) on the assessment of controlling stakes in similar companies;
c) on the company's future income.
9. Which of the following methods are used to calculate the residual
cost for an operating enterprise:
a) Gordon's model;
b) the "supposed sale" method;
c) at the cost of net assets;
10. For debt-free cash flow, the discount rate is calculated:
a) as the weighted average cost of capital;
b) the cumulative construction method;
c) using a capital asset valuation model;
11. Is the statement true: for the case of a stable income level for an unlimited time, the capitalization ratio is equal to the discount rate?
12. When the growth rate of the enterprise is moderate and predictable, then it is used:
a) discounted cash flow method;
b) income capitalization method;
c) the method of net assets.
13.What method can be used to determine the value of the non-controlling stake
a) the method of transactions;
b) the method of the net assets value;
c) capital market method.
14. Transformation of reporting is mandatory in the process of assessing an enterprise:
15. For cash flow for equity, the discount rate
calculated:
a) as the weighted average cost of capital;
b) the cumulative construction method;
c) using the capital asset valuation model.
16. Does the appraiser need to analyze the financial condition of the company:
17. In determining the market value, the market should be understood as:
a) a specific seller and buyer of similar types of enterprises;
b) all potential sellers and buyers of similar types
enterprises.
18. Shares valued at the market value standard are almost
always make up:
a) a controlling stake;
b) non-controlling stake.
19. What components include investment analysis for model calculations
cash flow for equity:
a) investment;
b) an increase in own working capital;
c) demand for products.
20. Is it true: for cases of increasing in time monetary
flows, the capitalization ratio will always be higher than the rate
discounting:
21. The multiplier is the ratio between the selling price and any
financial indicator:
22. Business is:
a) the enterprise as a whole;
b) an enterprise with branches and subsidiaries;
c) a specific activity organized within a certain
structures.
24. Normalization of reporting is carried out in order to:
a) bringing it to uniform accounting standards;
b) determination of income and expenses typical for normal
operating business;
c) streamlining of financial statements.
25. The calculation of the residual value is required in:
a) capital market method;
b) the method of excess profits;
c) the method of discounted cash flows.
