Business Valuation: What determines the price of
How to determine the real cost of operating the business? How to determine the real value of existing business? Currently used many different methods and approaches. Experts believe that none of them can not be considered universal, and objective business valuation will be higher if we use several methods.
In international practice, the valuation of companies is based on the use of three basic approaches: cost, income and comparative. Each of these involves the use of certain methods, and requires compliance with special conditions.
The income approach is an assessment of enterprises on existing projects, that is, the expected cash flows.
The cost approach involves the assessment of the cost overhead of a business, as well as assessment of existing tangible and intangible assets.
Comparative evaluation based on an assessment of business value in comparison with similar objects.
Selecting a particular method depends on the availability of information on facility assessment: can we predict current and future earnings, if the company has significant financial or financial assets, etc.
If the revenue can not be calculated exactly, or, for example, the results of the enterprise depends largely on contracting methods are used net asset value and liquidation value.
Net asset value method assumes that all assets are valued taking into account debiting accounts receivable and liabilities on loans and other factors. Net assets are calculated as the difference between assets and liabilities.
The method involves the assessment of the liquidation value of assets in the amount by which they can sell at this time with less costs, and applies if the company is on the verge likvizhatsii.
If the company's revenues can be anticipated, demand for products or services is stable recommended practices based on the analysis of income or comparative methods using multipliers. The multipliers are calculated, if not find necessary to estimate the number of company-analogues, which can be compared to the estimated business.Fairly clear results provides an estimate of business value by capitalization of profits. Rapid assessment: a method of capitalization of profits
Fairly clear results provides an estimate of business value by capitalization of profits. With it you can also get the minimum amount for which may be sold ready-made business.
The method is based on accounting profit, which may be obtained by investing in the organization, which is subjected to evaluation, compared with a profit from the same amount of investments in other areas of business, also takes into account the current bank deposit interest.
For a more graphic example is the following formula:
CP = CP / G
In this formula, the CP - this is the capitalization of profits, PE - net profit after tax for the past year, and E - the discount rate.
The discount rate can be defined in different ways, depending on the conditions. This figure includes the minimum guaranteed rate of return, inflation rate, as well as the risk factor.
The calculation of the discount rate can be defined as an alternative rate of return required rate of return or weighted average cost of capital. A more correct is to use two methods at once.
In general, income capitalization method in a crisis is considered to be less effective than others, so as to determine the amount of income available in different speculative action on the part of business owners.A comparative approach to valuing a business, to some extent identical to the income capitalization method, because in fact, and in another case, the business value is determined based on the sum of its dohodaSravnitelny approach and multipliers
A comparative approach to valuing a business, to some extent identical to the income capitalization method, because in fact, and in another case, the business value is determined based on the amount of his income. But if a method capitalization Enterprise Value is calculated as the income, divided by the capitalization rate, which was built on the basis of market data, the comparative approach involves a comparison of market data revenue, multiplied by the amount, called the price multiplier.
Multiplier - the ratio between the market price of the company and the indicator of the results of its industrial or financial activities. Multipliers prinyatno divided into physical and financial. Financial multipliers are considered universal, since they are applicable for assessing all types of businesses. Physical indicators are specific to particular industries.
Natural multipliers implies that the denominator of one of the physical indicators, such as:
"The Cost / Capacity (in tons per year)";
"Price / Production (in tonnes per year)";
"Price / Sales (in units)."
To evaluate selected factors that determine the amount of profits or assets of the company.
Financial multipliers are in the denominator of one of the monetary aggregates:
"The price / dividend payments"
"The price / book value";
"The price / net asset value";
Vyshepericheslennye torque multipliers are known. Also distinguish between interval financial multipliers:
"The price / revenue."
"Price / Earnings";
"The price / cash flow";
To calculate each of the multipliers is required to determine what value will be used as the numerator. This may be the price of one stock or the value of all shares. It is also important to calculate the necessary financial and physical indicators, which will serve as the denominator.
Consider the example of calculating the cost of using a multiplier Price / Earnings. Take the initial data for a net profit of the company for the last fiscal year - let it be 10 million rubles. Assume that we have information that a similar company with a net profit of $ 30 million was recently sold for 300 million rubles.
These data make it possible to calculate the multiplier - the ratio of market price-earnings ratio. 300/30 = 10.
Thus, to determine the value of the target firm, you need 10 * 10 = 100 million rubles.
Method using multipliers from the relative ease and speed of calculation became very common, but it is important to remember that he has a bias. Since working with multipliers requires selection of company-analogues, the error may be due to the fact that close analogues may not be, or the impact the lack of sufficient information about the company being evaluated.
Another error is due to the fact that the estimates of the multipliers used market indices, calculated on the basis of quotations of shares in public companies or the cost of acquisitions of similar companies. But the correctness of these market indicators, the objectivity of this assessment can only be the case for the fundamental study of the market.Negative situation in the world economy has identified three main today the most appropriate method for estimating cash flows biznesa.Diskontirovanie
Negative situation in the world economy has identified three main most appropriate method of valuation of the business today. In addition to the comparative approach, experts allocate the discounted cash flow method of valuation and loss-making companies in crisis.
Discounted cash flow method involves building a finance flow forecast for 5 or 10 years ahead, taking into account the specific growth rate of revenues and expenses and the choice of discount rate. In fact, this approach is largely similar to the capitalization of profits.
The method contains a lot of assumptions because it is difficult to accurately predict the growth rate of revenues and expenditures, as well as to calculate the discount rate. But the accuracy of prediction depends largely on the price you pay now when buying businesses.
Nevertheless, it is believed that in the midst of economic turmoil, this method is more effective than the use of multipliers, although evaluation of companies in dire financial straits, its use is inefficient.Assessment of loss-making companies
Quite a lot of offers for the sale of businesses are actually offering to sell loss-making companies in crisis.
Such companies are usually sold with two goals: the investor can sell the company as a separate asset or attach it to a holding based on the synergistic effect.
In the first case to assess the business method of liquidation value, and the second - the method of net assets.
Before proceeding to the assessment of the selected object, it is important to determine for themselves the goal of buying: long-term investment or as an asset for sale. From this largely depends on the choice of approach.
Total value of the business depends on many factors - economic, social, political, on the level of demand and supply, the prospects for further development. We recommend that you contact a qualified technician with extensive experience in assessing the business of various industries and fields.
How to determine the real cost of operating the business? How to determine the real value of existing business? Currently used many different methods and approaches. Experts believe that none of them can not be considered universal, and objective business valuation will be higher if we use several methods.
In international practice, the valuation of companies is based on the use of three basic approaches: cost, income and comparative. Each of these involves the use of certain methods, and requires compliance with special conditions.
The income approach is an assessment of enterprises on existing projects, that is, the expected cash flows.
The cost approach involves the assessment of the cost overhead of a business, as well as assessment of existing tangible and intangible assets.
Comparative evaluation based on an assessment of business value in comparison with similar objects.
Selecting a particular method depends on the availability of information on facility assessment: can we predict current and future earnings, if the company has significant financial or financial assets, etc.
If the revenue can not be calculated exactly, or, for example, the results of the enterprise depends largely on contracting methods are used net asset value and liquidation value.
Net asset value method assumes that all assets are valued taking into account debiting accounts receivable and liabilities on loans and other factors. Net assets are calculated as the difference between assets and liabilities.
The method involves the assessment of the liquidation value of assets in the amount by which they can sell at this time with less costs, and applies if the company is on the verge likvizhatsii.
If the company's revenues can be anticipated, demand for products or services is stable recommended practices based on the analysis of income or comparative methods using multipliers. The multipliers are calculated, if not find necessary to estimate the number of company-analogues, which can be compared to the estimated business.Fairly clear results provides an estimate of business value by capitalization of profits. Rapid assessment: a method of capitalization of profits
Fairly clear results provides an estimate of business value by capitalization of profits. With it you can also get the minimum amount for which may be sold ready-made business.
The method is based on accounting profit, which may be obtained by investing in the organization, which is subjected to evaluation, compared with a profit from the same amount of investments in other areas of business, also takes into account the current bank deposit interest.
For a more graphic example is the following formula:
CP = CP / G
In this formula, the CP - this is the capitalization of profits, PE - net profit after tax for the past year, and E - the discount rate.
The discount rate can be defined in different ways, depending on the conditions. This figure includes the minimum guaranteed rate of return, inflation rate, as well as the risk factor.
The calculation of the discount rate can be defined as an alternative rate of return required rate of return or weighted average cost of capital. A more correct is to use two methods at once.
In general, income capitalization method in a crisis is considered to be less effective than others, so as to determine the amount of income available in different speculative action on the part of business owners.A comparative approach to valuing a business, to some extent identical to the income capitalization method, because in fact, and in another case, the business value is determined based on the sum of its dohodaSravnitelny approach and multipliers
A comparative approach to valuing a business, to some extent identical to the income capitalization method, because in fact, and in another case, the business value is determined based on the amount of his income. But if a method capitalization Enterprise Value is calculated as the income, divided by the capitalization rate, which was built on the basis of market data, the comparative approach involves a comparison of market data revenue, multiplied by the amount, called the price multiplier.
Multiplier - the ratio between the market price of the company and the indicator of the results of its industrial or financial activities. Multipliers prinyatno divided into physical and financial. Financial multipliers are considered universal, since they are applicable for assessing all types of businesses. Physical indicators are specific to particular industries.
Natural multipliers implies that the denominator of one of the physical indicators, such as:
"The Cost / Capacity (in tons per year)";
"Price / Production (in tonnes per year)";
"Price / Sales (in units)."
To evaluate selected factors that determine the amount of profits or assets of the company.
Financial multipliers are in the denominator of one of the monetary aggregates:
"The price / dividend payments"
"The price / book value";
"The price / net asset value";
Vyshepericheslennye torque multipliers are known. Also distinguish between interval financial multipliers:
"The price / revenue."
"Price / Earnings";
"The price / cash flow";
To calculate each of the multipliers is required to determine what value will be used as the numerator. This may be the price of one stock or the value of all shares. It is also important to calculate the necessary financial and physical indicators, which will serve as the denominator.
Consider the example of calculating the cost of using a multiplier Price / Earnings. Take the initial data for a net profit of the company for the last fiscal year - let it be 10 million rubles. Assume that we have information that a similar company with a net profit of $ 30 million was recently sold for 300 million rubles.
These data make it possible to calculate the multiplier - the ratio of market price-earnings ratio. 300/30 = 10.
Thus, to determine the value of the target firm, you need 10 * 10 = 100 million rubles.
Method using multipliers from the relative ease and speed of calculation became very common, but it is important to remember that he has a bias. Since working with multipliers requires selection of company-analogues, the error may be due to the fact that close analogues may not be, or the impact the lack of sufficient information about the company being evaluated.
Another error is due to the fact that the estimates of the multipliers used market indices, calculated on the basis of quotations of shares in public companies or the cost of acquisitions of similar companies. But the correctness of these market indicators, the objectivity of this assessment can only be the case for the fundamental study of the market.Negative situation in the world economy has identified three main today the most appropriate method for estimating cash flows biznesa.Diskontirovanie
Negative situation in the world economy has identified three main most appropriate method of valuation of the business today. In addition to the comparative approach, experts allocate the discounted cash flow method of valuation and loss-making companies in crisis.
Discounted cash flow method involves building a finance flow forecast for 5 or 10 years ahead, taking into account the specific growth rate of revenues and expenses and the choice of discount rate. In fact, this approach is largely similar to the capitalization of profits.
The method contains a lot of assumptions because it is difficult to accurately predict the growth rate of revenues and expenditures, as well as to calculate the discount rate. But the accuracy of prediction depends largely on the price you pay now when buying businesses.
Nevertheless, it is believed that in the midst of economic turmoil, this method is more effective than the use of multipliers, although evaluation of companies in dire financial straits, its use is inefficient.Assessment of loss-making companies
Quite a lot of offers for the sale of businesses are actually offering to sell loss-making companies in crisis.
Such companies are usually sold with two goals: the investor can sell the company as a separate asset or attach it to a holding based on the synergistic effect.
In the first case to assess the business method of liquidation value, and the second - the method of net assets.
Before proceeding to the assessment of the selected object, it is important to determine for themselves the goal of buying: long-term investment or as an asset for sale. From this largely depends on the choice of approach.
Total value of the business depends on many factors - economic, social, political, on the level of demand and supply, the prospects for further development. We recommend that you contact a qualified technician with extensive experience in assessing the business of various industries and fields.
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