Company valuation. Business valuation - benefits, methods and approaches Estimation of the market value of a business and its increase

What methods (methods) are used to assess the value of a business? How is business valuation carried out by example and what are the goals for this? What documents are needed to assess the business of an enterprise?

Hello everyone who visited our resource! In touch Denis Kuderin is an expert and one of the authors of the popular HeatherBober magazine.

In today's publication, we will talk about what a business valuation is and why it is needed. The material will be of interest to present and future entrepreneurs, directors and managers commercial companies and all those who are close to business and financial topics.

Those who read the article to the end will receive a guaranteed bonus - an overview of the best Russian companies specializing in business valuation, plus advice on choosing a reliable and competent appraiser.

1. What is a business valuation and when is it needed?

Any business - whether it is a plastic cup manufacturing company or an automotive complex - strives to develop and expand its sphere of influence. However, it is impossible to correctly assess your prospects without a comprehensive analysis of the current state of affairs.

It is business valuation that gives owners and managers of existing commercial enterprises a real picture of the company's assets and its potential.

When does a business need an appraisal?

• sale of the entire enterprise or its shares in the form of shares;
• rent of an operating business;
• development of new investment directions in order to expand and develop the company;
• revaluation of funds;
• reorganization of the company - merger, separation of individual objects into independent structures;
• liquidation of the company as a result of bankruptcy or termination of activities;
• issue or sale of shares;
• optimization of production and business activities;
• changing the format of the company;
• leadership change;
• transfer of assets as collateral;
• transfer of shares of the enterprise to the authorized capital of a large holding;
• company insurance.

As you can see, there are many situations in which a business needs a professional assessment. But the main objective there is always one such procedure - a competent analysis financial efficiency businesses as a means of making a profit.

When initiating business valuation activities, stakeholders want to know what revenues a particular business entity is or will be generating in the future. Sometimes the task of the assessment is even more specific - to answer the questions: develop or sell the company, liquidate it or try to reorganize, whether to attract new investors?

The value of a business is an indicator of its success and efficiency. The market value of a company is made up of its assets and liabilities, the value of its personnel, competitive advantage, profitability indicators for the entire period of existence or a specific time period.

Small business owners and individual entrepreneurs the question may arise - is it possible to evaluate the enterprise independently? Alas, the answer is no. Business is a complex and multifaceted category. You can get a rough estimate, but it is unlikely to be objective.

And one more important nuance - independently obtained data do not have an official status. They cannot be considered as full-fledged arguments and will not be accepted, for example, in court or as.

2. What are the goals of business valuation - 5 main goals

So, let's consider the main tasks that are solved during the business valuation procedure.

Goal 1. Improving the efficiency of enterprise management

Efficient and competent enterprise management is an indispensable condition for success. The financial status of the company is characterized by indicators of stability, profitability and sustainability.

Such an assessment is needed mainly for internal use. The procedure identifies excess assets that slow down production and undervalued industries that can bring profit in the future. It is clear that the first must be disposed of, the second - to develop.

Example

During the business valuation in trading company it turned out that the use of rented warehouses for storing products is 20-25% cheaper than maintaining and maintaining their own premises, which are on the balance sheet.

The company decides to sell its warehouses and continue to use only leased space. There are cost savings and optimization of production processes.

Goal 2. Purchase and sale of shares in the stock market

The management of the company decides to sell its shares on the stock market. To make an economically viable decision, you need to evaluate the property and correctly calculate the share that is invested in securities.

Selling shares is the main way to sell a business. You can sell the company as a whole or in parts. Obviously, the cost of a controlling stake will always be higher than the price of individual shares.

At the same time, valuation is important for both stockholders and buyers. It is also desirable that the appraiser not only name the market price of the package, but also analyze the prospects for the development of the business as a whole.

Goal 3. Making an investment decision

Such an assessment is carried out at the request of a specific investor who wants to invest in operating enterprise. Investment value is the potential ability of invested funds to generate income.

The appraiser finds out the most objective market value of the project from the point of view of the investment perspective. Take into account, for example, the prospects for the development of the industry in a particular region, the direction of financial flows in this area, the general economic situation in the country.

More information - in the article "".

Goal 4. Enterprise restructuring

The main goal of the owner ordering an appraisal during the restructuring of the company is to choose the most optimal approach to the processes of changing the structure of the company.

Restructuring is usually carried out in order to improve business efficiency. There are several types of restructuring - merging, accession, separation of independent elements. Evaluation helps to carry out these procedures with minimal financial costs.

With the complete liquidation of the object, the assessment is needed mainly for making decisions on the return of debts and the sale of property at free auction.

In the process of restructuring, it is often required to carry out, the current assets and liabilities of the company, complete.

Goal 5. Development of an enterprise development plan

Development strategy development is impossible without assessing the current status of the company. Knowing the real value of assets, the level of profitability and current balance, you will rely on objective information when drawing up a business plan.

In the table, the assessment objectives and features are presented in a visual form:

№	Objectives of the evaluation	Peculiarities
1	Improving management efficiency	Results apply for internal use
2	Purchase and sale of shares	Valuation is important for both sellers and buyers
3	Making an investment decision	The object is evaluated in terms of investment attractiveness
4	Business restructuring	Evaluation allows you to change the structure, taking into account maximum efficiency
5	Development plan development	Evaluation allows you to draw up a competent business plan

Method 3. Estimated by industry peers

It uses data on the purchase or sale of enterprises close in profile and volume of production. The method is logical and understandable, but you need to take into account the specifics of the company being valued and specific economic realities.

The main advantage of this method is that the appraiser focuses on actual data, not abstractions, and takes into account the objective situation on the sales market.

There are also disadvantages - the comparative approach does not always affect the prospects for business development and uses average indicators of industry peers.

Method 4. Estimated cash flow forecast

The assessment is carried out taking into account the long-term prospects of the company. Specialists need to find out what profit a particular business will bring in the future, whether investments in the enterprise are profitable, when the investments will pay off, in what directions the funds will move.

4. How to assess the value of the business of an enterprise - a step-by-step instruction for beginners

So, we have already found out that only professionals can competently evaluate a business. Now consider the specific steps that business owners need to take.

Step 1. Choosing an appraisal company

The choice of an appraiser is a responsible and important stage of the procedure. The final result depends entirely on it.

Professionals are distinguished by the following features:

• solid experience in the market;
• use of up-to-date technologies and methods, modern software;
• availability of a functional and convenient Internet resource;
• a list of well-known partners who have already used the services of the company.

The assessors themselves must have permits and professional liability insurance.

Step 2 We provide the necessary documentation

In the appraisal firm, of course, they will explain in detail what documents you need to provide, but if you collect the package in advance, this will save time and immediately set the appraiser on a business wave.

Clients will need:

• title documents of the company;
• company charter;
• registration certificate;
• a list of real estate, property, securities;
• accounting and tax reports;
• list of subsidiaries, if any;
• certificates of debt on loans (if there are debts).

The package is supplemented depending on the goals and features of the procedure.

Step 3 We coordinate the business valuation model with the contractor

Usually the customer knows for what purpose he conducts the assessment, but is not always aware of which methodology is best to apply. During the preliminary conversation, the expert and the client work together to develop an action plan, determine the methods of evaluation and agree on the timing of its implementation.

Step 4 We are waiting for the results of industry market research by experts

To begin with, appraisers need to analyze the situation in the industry segment of the market, find out current prices, trends and development prospects for the area under study.

Step 5 We follow the business risk analysis

Risk analysis is a necessary stage of business assessment. The information obtained in the course of such an analysis is necessarily used in the preparation of the report.

Step 6 We control the determination of the development potential of the enterprise

Professional appraisers always take into account the prospects for business development, but it is desirable for clients to control this stage of the study and be aware of the results. It is always good to know what potential your enterprise has.

Step 7 We receive a report on the work done

The final stage of the procedure is the preparation of the final report. Ready document breaks down into individual items and contains not only bare figures, but also analytical conclusions. The report, certified by signatures and seals, has official force in resolving property disputes and in litigation.

How to conduct an assessment as competently and safely as possible for your company? Best Option– involve independent lawyers as consultants at all stages. This can be done by using the services of the site Lawyer. The specialists of this portal work in remote mode and are available 24/7.

Most of the consultations on the site are free. However, if you need more in-depth assistance, the services are paid, but the amount of the fee is set by the customer.

5. Professional assistance in business valuation - an overview of the TOP-3 valuation companies

No time, desire or opportunity to look for an appraiser yourself? Don't worry, take advantage of our expert review. The top three Russian appraisers include the most reliable, competent and trusted companies. Read, compare, choose.

It does not matter for what purpose you are conducting an assessment - purchase and sale, secured lending, management improvement, reorganization - KSP Group specialists will carry out the procedure professionally, promptly and in accordance with all the rules.

The company has been operating on the market for more than 20 years, has about 1000 regular customers, and is well versed in realities. Russian business provides free consultations to clients. Among the permanent partners of the company famous companies, small and medium enterprises.

The organization is a member of Self-regulatory organization ROO (Russian Society of Appraisers) and liability insurance for 5 million rubles.

The company was founded in 2002. The company guarantees prompt work (the term for business assessment is 5 days) and offers adequate prices (40,000 for a standard assessment procedure). In its methods, the organization adheres to the principles of "Ethical Business" - transparency, honesty, openness, compliance with the terms of the contract, responsibility.

Yurdis employs 20 professional appraisers, members of the largest Russian SROs. Each of the specialists has liability insurance in the amount of 10 million rubles, diplomas and certificates confirming their high qualifications. Among the well-known clients of the company are Gazprombank, Sberbank, Svyazbank, Center for Organization of Military Mortgage.

3) Atlant Grade

The company has been doing business in the appraisal market since 2001. Works with tangible and intangible assets, develops and predicts ideal schemes for increasing income, cooperates with enterprises in all regions of the Russian Federation.

The list of advantages includes the reference accuracy of estimates, competent legal execution of reports, a clear understanding of the goals and objectives of customers. The firm is accredited by commercial and state banks of the Russian Federation, uses an extended methodological base in its work, and applies its own technological and scientific developments.

And a few more tips on choosing a competent appraiser.

Reputable companies have a well-designed and flawlessly functioning website. Through the Internet resource of such companies, you can get free consultations, order services, talk with managers and representatives of the support service.

Conversely, one-day firms may not have a network portal at all, or it may be designed as a cheap one-page site. No additional information, analytical articles, interactive features.

Tip 2. Refuse to cooperate with broad-based companies

Organizations that position themselves as universal firms do not always have the appropriate level of competence.

At the present stage of development of the business market and the world economy, the valuation of intangible assets and intellectual property has become no less important than tangible ones. The role of objective analysis and accurate determination of business value has increased. This procedure is simply necessary for those who are planning to invest, buy or sell enterprises. An independent assessment of the company's value in such situations becomes important tool management that will enable right choice, avoid many risks and get maximum profit. It will not even be able to fully function and expand without qualitative assessment at one stage of development.

What is a business valuation?

Business valuation is a procedure for determining the market value of an enterprise (taking into account tangible, intangible assets, financial condition, expected profit) conducted by authorities or experts. Any property in conjunction with a package of rights to it can become the object of assessment. The meaning of the term "business valuation" is slightly different. It implies the definition in monetary terms of the value of the enterprise, which includes (apart from assets) its utility and the costs incurred to obtain it.

The main purpose of the appraisal is to establish for the client the value of the market value of the assets being appraised. The customer initiates a business valuation, as a rule, in the event of a sale or purchase of a company, equity interest, lending, project financing, improving the efficiency of enterprise management, etc. Often there are situations when several reasons are combined.

When do you need a business valuation?

Increasing business value is one of the important indicators the growth of its profitability, the decrease indicates the need for changes in the management system and development strategy. Both the owner of the enterprise and a third party may be interested in conducting an objective assessment.

The value of a business is determined by:

• assessment of management effectiveness;
• corporatization;
• reorganizations;
• use of mortgage lending;
• taxation upon inheritance, donation;
• participation in the activities of the stock market;
• assessment of allocated business shares in the event of a merger in the form of consolidation and expansion;
• partial or complete liquidation;
• issuance of new shares, etc.

A business valuation may be needed not only by a potential investor or owner of an enterprise, but also by other market participants, such as insurance companies (to determine the amount of risk, confirm compliance with a risk sharing agreement between the client and the insured), credit organizations(to assess solvency, determine the optimal amount of the maximum loan), as well as to government agencies, shareholders, suppliers, manufacturers, intermediaries. Final result assessments can be presented in one report in several sections or in two different documents. The assessment of the enterprise is carried out in accordance with the goal, which is formulated by the customer when drawing up the Contract and the Assignment for assessment. They must necessarily comply with the Federal Law "On valuation activities in Russian Federation”, the provisions of the “National Code of Ethics for Appraisers of the Russian Federation” and the Federal Appraisal Standards.

Business valuation methods

Before investing or acquiring a business, the buyer first of all evaluates its usefulness for himself. It must meet his individual income needs. It is the latter indicator, taking into account costs, that is the basis of the market value that the appraiser calculates. The principles, methods and approaches to its definition are chosen based on the specifics of a business as a “commodity”: investment (money is invested in it, expecting to make a profit in the future), consistency (it can be sold as a system or individual elements), need (depends on the situation inside production and external environment). The appraisal process consists of several stages performed by a specialist appraiser to objectively determine the value of a business:

• conclusion of an appraisal agreement with the customer;
• determination of the characteristics of the object of assessment;
• market analysis;
• selection of assessment methods, calculations;
• generalization of the results obtained within the framework of each of the approaches, determination of the final value of the value of the object;
• preparing and submitting a report to the client.

At the fourth stage, the appraiser chooses one or more optimal approaches to enterprise valuation that will be most effective in a particular situation. Business valuation methods are universal, but they are selected individually in each situation.

costly

This approach implies a set of methods for assessing the cost of an object, which are aimed at determining the costs necessary for the restoration, replacement of the enterprise, taking into account costs, equipment wear and other factors. It allows you to track absolute changes in the balance sheet with its possible adjustment to the date of assessment (according to an independent expert appraiser) - data on current market prices for labor, materials and other costs are used.

Profitable

The income approach means a set of methods for assessing the value of an object, which are based on determining the amount of expected income from a business. In this case, the key factor determining the value of the object is income. The larger it is, the higher its market value. Here, experts apply the estimated principle of expectation, taking into account the period of receipt of potential income according to the plan, the number and degree of risks. For the analysis, capitalization ratios are used, which are calculated based on market data. This valuation method is considered the most effective and convenient for determining the value of a business (only in some cases, comparative or costly ones turn out to be more accurate). The approach is better to use if the company's income is stable.

Comparative

The comparative method of determining the value of an enterprise means a set of valuation methods that are based on a comparison of the object of assessment with competing objects (with similar characteristics, availability of information on transaction prices). Experts believe that it is he who gives the most accurate results (of course, provided active work market of properties similar in parameters). For this approach, market data for similar objects and the method of the capital market, transactions and industry coefficients are used (with elements - comparative analysis by benchmarks).

Important: it is worth noting that each approach makes it possible to emphasize and objectively analyze certain characteristics of the object of assessment, but they are all interconnected.

How to evaluate the value of a business?

Valuation of business and other objects is carried out by specialized companies. In order to assess the value of the enterprise, it is necessary to contact specialists, clearly indicate the purpose of determining the value and sign the Agreement. According to Decree of the Government of the Russian Federation of December 2007 No. 60, the assessment process should take place in several stages:

1. Definition of the object (description, rights to it, date and basis of assessment, limiting conditions).
2. Conclusion of an appraisal contract (definition and preliminary inspection of the object, selection of the type, sources of the necessary data, recruitment of personnel, development of an appraisal plan, drawing up and concluding a contract, payment for services).
3. Determination of the characteristics of the object (collection and verification of data, determination of external and internal information).
4. Market analysis (includes analysis financial ratios, reports, correction financial reporting for evaluation purposes).
5. Selection of methods within a specific approach (or several), carrying out the necessary calculations.
6. Summarizing the results, determining the final cost of the object.
7. Compiling and submitting a report to the client.

Choosing an appraisal company

The appraisal company is the organizer of the appraisal project, assists the appraiser in his professional activities, provides marketing, financial and information support. It provides services not only to business owners, but also to legal entities, financial institutions(most often banks), insurance companies and government agencies. Valuation services are paid, as a rule, by the owner of the property, but often the second party puts forward certain requirements regarding the appraiser company. When choosing an appraisal company, it is necessary to collect as much objective information about it as possible and make sure of its competence and professionalism. Particular attention should be paid to the following factors:

• time on the market;
• customer reviews;
• business reputation;
• position in the ratings of independent specialized agencies and publications (but it is important to pay attention to the rating criteria, it should be formed from generalized indicators; you can use data, for example, from the banki.ru resource, which display the degree of customer satisfaction with the services of different banks, and see what ratings companies they cooperate with);
• documents (Certificate of state registration legal entity, copies or scans constituent documents etc.);
• awards, certificates, diplomas;
• the amount of liability insurance (the higher it is, the safer it is for the customer).

The valuation company must prove itself as an organization that gives the right results and offers the services of objective experts, not motivated by a third party.

Submission of necessary papers

To start the assessment process, the business owner must provide a package of documents. Its position depends on the purpose of the event, the form of ownership and the criteria for the formation of the assessment. Many appraisal companies have launched websites where you can apply online or by phone (but you only need to submit documents in person). The basic package includes the following papers:

1. Registration Certificate or Articles of Association.
2. For joint-stock companies - reports on the results of the issue of securities, an extract from the register of shareholders.
3. Documents displaying organizational structure and activities of the facility.
4. Financial statements for the last 3-5 years, sometimes an additional explanation is needed for some balance sheet items.
5. Copies of patents, licenses.
6. If necessary, documents confirming the ownership of real estate.

Advice: it is important to consider that each appraisal company own work methodology. Sometimes except basic set additional documents are required from the customer, for example, a development plan for the next few years, drawing up an investment project, an auditor’s report, explanatory note from the owner with a description of the company and an indication of the number of staff.

Appraisal model alignment

The dynamic economic situation in the country and the world makes it necessary to develop an individual model for each assessment. The study of the same object is rarely repeated, but in this case it is impossible to reproduce the same assessment. Appraisers use generally accepted models as a basis. Their choice must be agreed with the client based on the goals and objectives of the project. The optimal model should take into account not only the financial aspect, but also help in assessing the level corporate governance, have the potential and act as an independent method for assessing the value of a business.

Basic business valuation models:

1. Economic value added (EVA).
2. Market value added (MVA).
3. Equity value added (Shareholder value added - SVA).
4. Total shareholder return (TSR).
5. Added thread Money(Cash value added - CVA).

Getting a report with results

Business valuation - example

The business valuation report can be submitted both in text format and in the form of tables or with their active use. For example, consider the valuation of an enterprise using the net asset value method (cost approach). It is most often used if the company has significant tangible assets (or very few of them), a percentage of total costs in the cost of a product or service is negligible, in recent years the cash flow has been subject to significant fluctuations and if the company does not have fully depreciated assets that are currently generating income.

Consider an example based on a table:

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Business valuation is necessary not only for conducting purchase and sale transactions, calculating the collateral value, but also for other purposes, for example, to determine the effectiveness of management. In the course of performing the assigned task, the expert takes into account, in addition to the costs of creating an enterprise, market factors, which can affect the cost, and also uses technological, organizational and financial analyses. Valuation activity is the most important part of any developed state, because the results of the valuation become the basis for the adoption of important economic and management decisions in the private and public sectors.

In contact with

Estimating the value of a business is a rather complicated and expensive procedure, but sometimes it becomes the only right step before making strategically important decisions. When it becomes necessary to evaluate a business, what valuation methods exist, and how to get the maximum benefit from the valuation for the business, you will learn in the article.

Business valuation: what is it and when is it needed

Let's make an analogy. If you are going to buy or sell a house with a plot, what will be the first thing you do? That's right - you look through ads for the sale of similar houses in selected areas in order to "price the price", set the right price for the house, based on the market situation and your expectations.

In fact, you will determine the price of assets (house and land) by comparing indicators such as:

1. Net assets - the amount of expenses that you or the owner of the house incurred for the purchase and construction, repair and improvement.
2. Market expectations - the amount that buyers are willing to pay for a similar object on the market today.
3. Own expectations (investment expectations) - the amount in which you or the buyer evaluate the future benefits of acquiring an object. It could be the benefits of own use, vacation time with grandchildren, or the health benefits of self-grown crops. Or it could be the benefit of investing in buying a house if you plan to rent it out and/or sell it when the price rises.

The situation is the same with business, with the only difference that it is impossible to find two at least approximately identical businesses. Even a typical coffee shop will have its own unique characteristics: traffic, coffee quality, team qualifications and motivation, interior, etc.

When it becomes necessary to assess the business of an enterprise

Let's start with those cases where the obligation to evaluate a business is prescribed by law. According to you, you are required to conduct a business valuation with the following cases:

1. When making transactions involving the property of the Russian Federation, that is, if one of the parties to the transaction of sale, lease or privatization is the state.
2. In the event of a dispute over the value of property. If a business segment Property Complex or the entire business is subject to collateral. Or if you have any disputes with the tax authorities about the correctness of the calculation of the base for paying tax.
3. When making a contribution to the authorized capital in non-monetary form, the share in the capital of the enterprise cannot be determined without the involvement of an appraiser.
4. When transferring an enterprise or a property complex to a mortgage.
5. When mortgaging an enterprise or a property complex.
6. At redemption joint stock company their shares at the request of the shareholders. Shares must be redeemed at a price not lower than the market price - the price is determined by an independent appraiser.
7. When a company goes bankrupt. The manager can start selling the property only after making an appraisal.

Those who voluntarily evaluate a business are those who:

• wants to buy/sell a business or share in a business. The seller does not want to lose in price, and the buyer does not want to overpay for what he cannot “feel”. Cm.,
• compares the investment attractiveness of a new project in an existing or new business with other ways to invest money. To find out what is more profitable: to continue to develop the same niche, expand it, or invest in related areas or even in a completely different business;
• creates a franchise out of his business. Royalty cost and lump-sum payments can only be determined by understanding the initial price of the collection of assets that you want to sell ( trademark, business processes, image, contracts with suppliers, etc.);
• wants to improve the quality of management of an existing business, including restructuring, getting rid of unprofitable assets, identifying assets whose potential is not fully realized (see preparing for mergers or acquisitions. An additional stimulus for evaluation appears - the definition of the synergy effect;
• plans to get a loan from a bank or a fund secured by property. With results in hand independent evaluation, the borrower may require more profitable terms on loans (see also, insures the property complex;
• transfers the rights to use intangible assets on a license basis;
• assesses the damage from offenses in the field of use of intangible assets. The assessment documents will be indispensable arguments in court, since the offender will be required to pay the amount of proven damage and lost profit;
• plans to benefit from for tax optimization purposes;
• holds voluntary liquidation business.

Why is an assessment needed? Let's move on to the section: How to value a business?

Business Valuation Methods

Let's go back to the analogy with buying a house. There are three ways to value a home:

1. The comparative method is to compare the prices of similar houses on the market.
2. The cost method is to calculate how much money you need to buy the same land and build the same house yourself.
3. The income method is to predict how much value the purchase of this house will bring in the future.

So, the same methods are used to evaluate a business. Let's consider each of them in more detail.

Business valuation methodology that suits the owner

The business valuation methodology should be chosen based on the specific goals of the owner. See - five ways to assess the value of a business, in case the owner buys or sells:

• a company whose shares are publicly traded;
• share of society;
• operating business;
• additional infrastructure for own business;
• an organization on the brink of liquidation or bankruptcy.

Comparative approach to business valuation

It is based on determining the value of an object by searching for similar objects and applying correction factors to them.

Subdivided into:

• peer company method;
• transaction method;
• method of industry coefficients.

Analog company method

The analogue company method involves the selection of similar companies being valued in the formed stock market, and the transaction method, as a special case of the analogue company method, operates on the mergers and acquisitions market.

The evaluation algorithm for these two methods is similar:

1. Collect information and make a list of analogues.
2. Carry out a standard financial analysis of the statements of the company being valued and peer companies.
3. Calculate multiples for each company based on key indicators financial analysis(revenue, profit, liquidity, financial stability etc.). The multiplier is a ratio that shows the relationship between the company's value and its key financial indicators.
4. Using statistical methods, averages are determined - the mode or median of multipliers, which are multiplied by the indicators of the financial statements of the company being valued.
5. Calculate the value of the company by matching the values ​​obtained on the basis of the use of different multipliers.

The owner of the business will do everything possible to inflate its value as much as possible when selling. But even if the time allotted for the deal is not enough for a full-fledged due diligence, financial director the enterprise-buyer has every chance to detect a catch and insure against fraud. It is enough to know the common and most popular tricks used by sellers in order to embellish the real state of affairs in the company.

Industry coefficient method

The sectoral coefficients method finds more application in the Western markets, as there is a broader knowledge base and accumulated experience in transactions with the purchase and sale of companies by industry. Industry coefficients are ready-made multipliers calculated for companies in a particular industry.

The industry coefficient method is suitable for express valuation of small businesses and does not require the involvement of an appraiser, since it is easy to use. For example, it is known that MIN is the monthly revenue multiplier for a store household appliances is 1 and MAX is 2.

This means that it is possible to sell a home appliances store with a monthly revenue of k $2,000 for k $2,000 at a minimum and for k $4,000 at a maximum.

For a restaurant, industry multipliers by annual cash flow are MIN 1 and MAX 3 , which means that with an annual flow of k15,000 dollars, the buyer will expect a cost from k15,000 dollars to k45,000 dollars.

But in the realities of the post-Soviet space, the method of industry multipliers has not taken root, since there is no objective history in the markets for buying and selling business yet.

Advantages of the comparative approach: the algorithm for using the method is quite simple, it is easy to check and update it. Using the method does not require significant time costs. The cost of the business, obtained by the comparative method, has already been updated according to current market expectations.

Cons of the comparative approach: 1. lack of information about companies - analogues due to the underdevelopment of the market for buying and selling business; 2. The lack of expectations in terms of prospects in the comparative approach - both a business that is super profitable in the future and a business at the stage of recession are evaluated equally.

A ready-made model in Excel for a quick assessment of the cost of a business

To evaluate the business on your own in a short time, use the finished model in Excel. It will calculate the cost using the capitalization method net profit. A minimum of company information is required. Prepare a report on financial results three years prior to the valuation date. You will also need a few figures from the balance sheet for the last reporting date and planned revenue for the coming year.

Cost Approach to Business Valuation

The cost approach is not based on external factors of the existence of a business, but considers the business itself during the period of its existence. It is subdivided into the net asset method and the salvage value method. Accordingly, the first is used to determine the value of the business "for sale" and the second - to liquidate it.

net asset method

Its task is to determine the amount of equity capital by subtracting from the present value of all assets the present value of all liabilities.

The formula for determining the value of a business using the cost approach:

The implication is that, in the aggregate, a business cannot be worth less than the assets it has earned individually, and that a knowledgeable investor will not pay more for a business than it would cost to build the same business from scratch.

The second assertion of the cost approach is that the book value of assets is not equal to the market value. Therefore, in the cost approach, it is proposed to evaluate element by element:

• fixed assets;
• intangible assets;
• current assets;
• long term duties;
• Short-term liabilities.

To estimate the market value of each element of the balance sheet, you can use both the cost approach and other valuation approaches.

Example 1

Let's estimate the equipment which is on balance of the enterprise, a cost approach.

According to the balance sheet, the cost of the equipment is 2,400 thousand rubles, the date of commissioning is 01/01/2015, the initial cost is 4,200 thousand rubles.

The cost of the equipment at the current moment will be equal to:

Stack = St - And

The cost of reproducing identical equipment consists of the purchase, modernization, delivery and installation costs and amounts to 4,850 thousand rubles, based on 2018 prices. The cost of replacement is equal to the cost of reproduction.

Depreciation is calculated by the formula:

I \u003d IF + IM + IE

Depreciation of equipment for the period from 01/01/2015 to 11/30/2018 amounted to:

And \u003d 1160 + 520 + 250 \u003d 1,930 thousand rubles

The current cost of the equipment is 4,850 - 1,930 = 2,920 thousand rubles.

Liabilities are assessed only if there is reliable information about their market or "cost" value, in other cases they are given at book value.

Example 2

Before the takeover transaction, an invited team of appraisers evaluates the target company using the net asset method. The net assets of the target company amounted to $5,500 thousand.

Company balance sheet for the current and previous year

Index	Current year, thousand dollars			Previous year, thousand dollars
Assets
fixed assets
Intangible assets
Accounts receivable
Other current assets
Total assets
Liabilities
Borrowed funds
Accounts payable
Total liabilities
Equity

The appraisers made calculations and determined the current value of the assets and liabilities of the balance sheet.

Index	Current value, thousand dollars
Assets
fixed assets
Intangible assets
Accounts receivable
Other current assets
Total assets
Liabilities
Borrowed funds
Accounts payable
Total liabilities
Equity

Residual value method

Used to evaluate a business or property complex, based on the assumption of their liquidation. The task of the method is to determine which assets can be sold and what their price will be.

Salvage Value Formula:

Slikv = Stack * (1 - Sq.pr) - Zprod

Example 3

The company has decided to liquidate the warehouse complex, which consists of a building, land under it, warehouse equipment, and machinery. The current cost of the complex, determined using the net asset method, amounted to 8,750 thousand dollars, but as a result of the assessment, it was determined that part of the equipment was very obsolete (by 85%) and it was not possible to find a buyer for it in a short time. That's why this equipment it was decided to dispose of. Equipment stack $340,000, disposal costs $32,000. The exposition period was assumed to be 2 months due to the dismissal of personnel during this period. Forced sale coefficient was 0.3. Selling costs were estimated at $45,000.

The salvage value will be:

Slikv = (8750 - 340 - 32) * (1-0.3) - 45 = 5,820 thousand dollars

Advantages of the cost approach: the use of the cost approach is fully justified for capital-intensive enterprises that are experiencing financial difficulties and do not have a positive outlook for the near future. positive moment cost approach - its implementation does not require information about analogues, which greatly simplifies the assessment in non-transparent markets.

Cons of the cost approach: large labor and time costs for its implementation, its isolation from the market (for example, an enterprise could invest millions in setting up a workshop using a technology that is quickly outdated. The costs are high, the market value is zero), and from business development prospects (high-tech start-ups cost nothing cost approach).

Determining the fair value of a non-public company is more difficult. Undoubtedly, the ability of a business to generate income is the most important factor of value here, but for a minority owner of a non-public company, the ability to provide a return on invested capital is no less important. If the value of the future cash flow can be calculated, then the return on invested capital in this case is not a mathematical concept. In modern Russian conditions it is the possibility of legally withdrawing part of the profits that becomes the decisive factor in determining the price of a non-public business. No less significant than the very ability of a business to generate income.

Income Approach to Business Valuation

This is a favorite approach of all investors and businessmen, because each of the methods considers investments as a tool for making profit in the future, and not as a way to acquire worthless assets.

The income approach is based on the assumption that the business will generate cash flows (income) in the future, which can be recalculated to date. The most common methods of income approach are:

1. income capitalization method;
2. Method of discounting cash flows.

Income capitalization method

The simplest of the two methods is based on the assumption that the business is developing steadily and will bring conditionally the same income over the medium to long term.

According to the income capitalization method, the value of a business (shares in a business) is equal to the normalized annual return divided by the capitalization rate, i.e. it is calculated by the formula:

The normalized profit can be chosen from:

• net profit of the business for the last year;
• estimated profit for the first subsequent year;
• dividends for the past year;
• calculated dividend for the next year;
• the same values ​​averaged over the past 3–5 years.

The capitalization rate, in turn, is determined as the return on alternative investments according to the formula:

Example 4

The investor decides to enter into a share in a business that has consistently brought its owners an income of $ 5,000 for 5 years. The forecasts for the functioning of the business are positive, that is, it is planned that it will continue to bring $ 5,000 or even more, annually. Sale of a share in 30% is discussed. An alternative to investing money for an investor will be another project with a yield of 19% and similar risks.

The investor calculated maximum price share purchases using the income capitalization method

Scap = (5000 * 0.33) / 0.19 = $8,711

Having paid this money, he will receive an income equivalent to 19% per annum.

Benefits of the capitalization method income- its simplicity. Among the cons– the inability to take into account fluctuations in cash flows from period to period and the lack of accounting for the cost of liquidating the project at the end of the term.

Well, if the business is young, develops rapidly, or is subject to other factors that make cash flows uneven over the years, then the discounted cash flow method is used to evaluate it.

Discounted cash flow method

Based on building a cash flow model by periods and determining the discounted balance of cash flows.

The cash flow model can be built from two assumptions: the total investment in the project is estimated or only equity. It is also possible to build cash flows in nominal today's prices or in real prices, taking into account inflation.

The choice of the period for building the cash flow model depends on the stability of the business. It is believed that after the settlement period, the business will have to bring a stable or steadily growing profit, so all cash flow fluctuations must be described in the model. In practice, models are often built for 3-5 years.

In order to fill the model with numbers on revenue and costs, they conduct a retrospective analysis of the business, evaluate market expectations, competition, and existing production capacity. Often used mathematical models building trends.

The investment forecast is made on the basis of investments in fixed assets and working capital necessary for the creation (development) of the business.

At the end of the project, its cost is not zero, but one of the following:

1. liquidation, if it is planned to close the business;
2. net asset value if sold;
3. cost according to the Gordon model, if you plan to continue the business and extract a steady income from it. See also How to Use the Gordon Model to Valuate Assets.

After entering all the data into the model, the net cash flow is calculated for each period and in general. But this figure is not yet the value of the business, since money in the future is worth less than money today. In order to bring the incomes of the future to their current value today, the flows are discounted, for which they determine the discount rate.

The discount rate is usually equal to the investor's risk-adjusted return on the project. It can be calculated using the capital investment method (CAPM) or.

As a result, the evaluator will receive a table graphically displayed in the figure.

To calculate the value of a business using the discounted cash flow method, the NPV indicator is used.

Example 5

The team of appraisers from example 2 evaluates the target company not only using the net assets method, but also using the income method.

All preparatory activities were carried out, a forecast was made for the functioning of the business for 5 years, the cost of capital and the terminal cost of the project were calculated.

Financial model:

Index
	thousand dollars	thousand dollars	thousand dollars	thousand dollars	thousand dollars
Sales of products
Raw materials, contractors
Personnel costs
Other operating expenses
Financial flows
Investment flows
Total CF

TV = 2510 thousand dollars

The cost of the business was calculated:

NPV = -480/1 + 1114/ (1+0.11) + 2021/ (1+0.11) 2 +2473/(1+0.11) 3 +2980/(1+0.11) 4 +2510/(1+0.11) 5 = 6836 thousand dollars

Advantages of the income approach: when forming the value of the business, the prospects and value brought to the investor are taken into account.

Cons of the income approach: this method is the most subjective possible, because forecasts for the future are built with a large degree of uncertainty, and the position of the appraiser (optimistic or pessimistic) plays an important role here. The emergence of income and expenditure figures is difficult to objectively prove, so the degree of confidence of information users in the income approach is reduced.

Benefits of using different approaches to business valuation

In conclusion, a few words about profitable juggling with numbers, as a bonus for those who have read the article to the end.

As you may have guessed, the evaluation results obtained using different approaches differ. Sometimes they can differ ten or more times.

Therefore, never agree to the offer of an appraiser or business partner to evaluate a part or a business in its entirety with only one of the approaches. Compare alternatives and look for a better one.

What do you think, the investors who evaluated the company - the target for acquisition from examples 2 and 5, what valuation method was advertised? Of course, the net asset valuation. And they offered to take over the company for 5,500 thousand dollars, while they themselves had in mind an income of 6,836 thousand dollars.

The final choice of business price between several approaches is not fixed anywhere by law, it can be the choice of a single price, or a weighted average between several approaches, in general, there is room for imagination.

Liabilities included in the calculation include:

• Article of the third section of the balance sheet - targeted financing and receipts;
• Long-term liabilities for loans and credits and other long-term liabilities (fourth section of the balance sheet);
• Articles of the fifth section of the balance - short-term liabilities on loans and credits; accounts payable; debts to participants (founders) for payment of income; reserves for future expenses; other short-term liabilities.

2. Income approach

The valuation of an enterprise's business using the income approach is carried out on the basis of company income, those economic benefits that the owner receives from owning the enterprise.

The valuation is based on the principle that a potential buyer will not pay more for a share in an enterprise than it can generate future income.

The assessment of the future income of the enterprise is made taking into account the factor of change in the value of money over time - the income received at the present time is of greater value to the investor than the same income that will be received in the future.

The total value of the enterprise is calculated as the sum of the income streams from business activities in the forecast period, normalized to the current price level, plus the value of the business in the post-forecast period.

Within the framework of the income approach, two valuation methods are mainly used:

• direct capitalization method;
• method of discounting estimated income streams.

2.1. Direct capitalization method

The income approach considers the business as a long-term asset, profitable for the business owner. The direct capitalization method identifies a business with a certain kind of financial asset - a perpetual annuity. The features of this asset are:

• unlimited lifetime;
• cash flow stability (equal annual amounts or annual amounts increasing at a constant rate).

2.2. Method of discounting the estimated cash flows of income

This method of income approach is used to value enterprises that are in the stage of intensive business development, to value companies for which there is no reason to assume an unlimited life. The life of a business can be limited by lease agreements, a drop in demand for manufactured products, etc.

Under the discounted cash flow method, the value of an enterprise is based on future, forecasted income flows.

For ready-made businesses duration of the forecast period corresponds to the remaining effective life of the enterprise and reflects the possibility of predicting the timing of receipt of income from the activities of the business with a reasonable degree of probability of their receipt, without additional, significant financial investments in the assessed business.

The remaining effective projected life can be limited by the economic life of the product, the economic life of the goods, the obsolescence and physical wear and tear of equipment and production technologies, the lease terms for production and office space, and the prospects for the market in which the business being assessed operates.

The magnitude of the risk of income in the direction of increasing or decreasing is influenced by a number of factors. Accounting for the risks of investing in a business when determining the value of an enterprise using the income approach is carried out by selecting a capitalization or discount rate that is adequate to the risks and used to determine the current value of the cash flows expected from the business.

The discount rate is a factor used to convert future payments or receipts into present value. That is, the discount rate is used to determine the amount that an investor would pay today for an investment asset in order to receive income in the future.

3. Estimating the value of a business using a comparative approach

The comparative approach to business valuation assumes that its value is determined by the amount for which it can be sold in the presence of a well-formed market. In other words, the most probable value of the valued business may be the real sale price of a similar enterprise, fixed by the market.

The main advantage of the comparative approach is that the appraiser focuses on the actual purchase and sale prices of similar enterprises, the method really reflects the supply and demand for this appraisal object, since the price of the actually completed transaction takes into account the situation on the sales market of ready-made businesses as much as possible.

To determine the value of an enterprise using a comparative approach, reliable market information about purchase and sale transactions of ready-made businesses, and reliable financial information about sold businesses is required. On the market, this information is closed.

Comparable sales valuation has its limitations. The comparative approach to valuation does not take into account the prospects for the development of the business being valued, therefore it is advisable to use this approach to evaluate enterprises that have reached a stable profit, and in respect of which it can be assumed that in a realistically forecasted future their activities will not be terminated

4. Estimating the value of a business by the method of empirical rules

Rules of thumb provide an inside look at the problems of the value of an enterprise, a company or a share in it, as well as issues of business security and reliability. However, cost data obtained using rules of thumb should only play a decisive role in decision making if supported by other valuation methods.

Most of the rules of thumb are percentage of gross income(sales volume, the amount of paid bills for the year, the annual gross income, the annual amount of fees received, the annual revenue, all of which are equivalent in the sense of applying rules of thumb). Adjusted annual income in the case of applying the rule of thumb corresponds to the total cash flow, including wages owner and the net income of the business itself. In other words, it is the amount of the revised, normalized return, which is often referred to as the seller's discretionary income or the company's cash.

Estimates of the enterprise's business obtained by the above methods may vary. The final element of the evaluation process is comparison of grades obtained on the basis of these methods, and the reduction of the obtained cost estimates to a single cost of the object. The harmonization process takes into account weak and strengths each method determines how adequately they reflect the objective state of the market. The total market value of the enterprise is calculated as a weighted average.

The process of reducing estimates leads to the establishment of the final cost of the object, which achieves the goal of the assessment.

On our website you can find examples of our work on enterprise valuation, as well as with procedure for ordering and performing this work. Read about the possibilities cost optimization for this service in our article "The cost of conducting a business valuation" .
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Business valuation is the procedure for calculating the value of a company, business, or share thereof. Any manager with the help of business assessment can make the right decision on the sequence of development of his enterprise.

Business valuation is the determination of the non-market or market value of a business as an integral set of property. It is also an assessment of the right to profit. When evaluating a business, they determine the results of the company's activities, its efficiency, forecast income, analyze the market and the competitive environment.

Company or enterprise valuation

When evaluating the value of a business, many factors are taken into account. various organizations evaluate different indicators. For example, for industrial enterprise(plant, factory) evaluate the value of the property complex. For companies that are engaged in the service sector or trade, the priority is to evaluate their income.

Company valuation is necessary for:

• partial or complete sale of the company;
• in creating a business plan;
• company restructuring;
• conducting various operations with the assets of the enterprise;
• insurance operations;
• obtaining a loan for business development;
• revaluation by the company of assets in accounting;
• issue of assets;
• taxation;
• determining the creditworthiness of the company;
• determination of the rental fee when renting a business;
• relevant court decisions;
• making various management decisions.

The valuation of the enterprise's business is carried out in the following categories:

• minority and majority stakes in the company are evaluated. This task gives the most complete picture of the value of a large block of shares or a business as a whole;
• the property complex, the company's assets, as well as the financial flows of the enterprise are evaluated;
• the company's shares quoted on the market are evaluated.

Business Valuation Methods

There are 3 methods for assessing the value of a business: profitable, costly and comparative. When this analysis, choose the method that gives the most accurate estimate.

The cost method is used taking into account the costs incurred. The advantages of this method:

• based on existing assets;
• suitable for the valuation of enterprises, investment and holding firms that have just started their activities.

The cost method does not take into account the prospects for business development - this is its drawback.

The liquidation cost method, as well as the net asset method, are components of the cost approach.

The income method is carried out by calculating the present value of the expected profit. The underlying factor that is considered is income and profit. The higher the company's income, the higher its value.

This method is the most popular and common, based on future profits. With its help, the valuation of the business reflects the results of the company's vigorous activity.

The comparative method involves the analysis and comparison of the business being assessed with competitive enterprises that operate in the market. Information for this method is drawn from open stock markets, previous transactions with business assets, and the absorption market.

Business Benefits

For any enterprise, business valuation has the following advantages:

• you can increase the efficiency of company management;
• develop a good business plan;
• make an informed investment decision;
• easy to restructure the enterprise;
• obtain information about the market value of the company;
• buy back shares from shareholders;
• receive weighted taxation;
• determine the value of shares in capital, securities.

The factors that determine the market value are future and current profits, the cost of creating a company with assets, the ratio of supply and demand, the degree of business control, and others.

Business valuation process

The valuation of a business enterprise is carried out in the following way:

• analysis of the market where the company is active;
• collection necessary information about the object being assessed;
• calculation and agreement of results using business valuation methods;
• report and interpretation of results.

Company valuation - determination of the value of the evaluated block of shares. The package can be majority, minority, controlling and blocking, depending on the number of shares. Valuation is carried out for enterprises with any type of shares.

The liquidity indicator (the quality of securities, which characterizes the possibility of their sale) affects the value of shares. The high value of a security depends on high liquidity.

Valuation of shares mainly determines their value, the ability to bring profit to the owner. Indicators such as net assets, dividends, capital market help to evaluate shares.

The market value of shares is a certain price at which the object of analysis and evaluation can be presented on the market with a large number of competitors.

Services in the field of business valuation are mainly provided by specialized companies that offer their strategies in this matter. A wide range of services allows you to carry out many actions, thus, it is estimated:

• property value;
• intangible assets (licenses, trademarks, technical documentation);
• the value of securities;
• the cost of goods;
• the cost of equipment and machinery.

When evaluating, they determine the market value, as well as other types of value (investment, collateral, insurance).

When determining the value of a business, the appraiser calculates the value of the assets and liabilities of the enterprise. Assets include any movable and immovable objects, equipment, financial investments, machinery, goods, cash reserves, employee qualifications, intellectual property (brands, trademarks), goodwill. Liabilities are various debts and outstanding obligations of the enterprise.

In the assessment and analysis of the value of a business, several approaches are used, so the assessment is ultimately as accurate as possible.