Transaction method is a method of assessing the value of an enterprise (business) using a comparative approach. It is based on the use as an information base of real market prices for the purchase and sale of controlling stakes or a 100% stake in enterprises (companies) similar to the one being valued.
The method determines the value of the assessed share of equity capital, taking into account the control premium. It is more expedient to use the transaction method if the object of assessment is the entire business or a controlling stake.
Estimating the value of a business using the transaction method includes the sequence of work.
1. The appraiser selects companies belonging to the same industry as the one being assessed, for which there is reliable information on the market price of their share capital. Then, for the selected companies, additional information is collected about their financial and business condition and a financial analysis of the company being assessed and its peers is carried out.
Based on the results of the financial analysis, a decision is made on the degree of similarity of analogues with the company being evaluated and its rating is determined.
2. Estimate multipliers are calculated. The estimated multiplier (a coefficient showing the ratio of the market price of share capital or its share to a financial indicator reflecting the profitability of the company) is calculated according to analogues, and is used as a multiplier for a similar financial indicator of the company being valued. For example:
- the market price of a similar company is 3000, net profit is 300;
- then the estimated multiplier is 3000: 300 = 10;
- if the profit of the company being valued is 250, then its estimated market value will be 250 * 10 = 2500.
The difficult part of this stage is the choice of the multiplier value that should be applied to the company being evaluated, since the range of values can be wide. The basis for the choice is the results of financial analysis, reflecting the place of the company being evaluated among its peers.
3. The appraiser calculates the final value. Evaluation results obtained using various types multipliers are analyzed according to the degree of reliability, the number and validity of preliminary adjustments, and their significance for the specific object being assessed.
The final value of the cost is calculated as the weighted average of the preliminary results, with final adjustments, such as adjustment for the presence of non-functioning assets, lack of property. working capital, etc.
The value found using the transaction method is comparable to the results obtained using methods inherent in the income approach and the cost approach to assessing the value of a business.
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The comparative approach to assessing an enterprise (business) involves the use of three main methods.
- Capital market method based on the real prices of shares of public enterprises prevailing on the stock market. This method is used when purchasing a controlling stake open enterprise, as well as to evaluate closed companies that operate in the same market segment as a public peer company and have comparable financial performance.
- Transaction method is based on the use of sales data of companies or their controlling interests. For example, such transactions may occur during mergers or acquisitions. This method is applicable for valuing a controlling stake or small closed firms.
- Industry coefficient method- involves the use of formulas or indicators based on sales data of companies by industry and reflecting their specific specifics.
The advantage of the comparative approach to business valuation is that it is based on market data and reflects the actual relationship between supply and demand on a particular exchange, which adequately takes into account profitability and risk. The main disadvantages include the difficulty of obtaining information on a sufficient range of similar companies; the need to make amendments to improve the comparability of the analyzed material; in addition, the method is based on retrospective data without the fact of future expectations.
In relation to Russian conditions, it should be noted that the use of a comparative approach to business valuation is limited due to the weakness of the stock market and the almost complete absence of sales of medium and small companies. The business market in Russia is just beginning to take shape. For example, the method of industry coefficients assumes stable statistics on sales of small enterprises, which would allow us to identify patterns of interrelation between financial and commercial indicators. In the absence of such statistics, the method is virtually inapplicable.
Business Valuation Process(enterprises) The comparative approach takes place in several stages:
- Search for an analogue company or comparable companies.
- The financial analysis and increasing the level of comparability of information.
- Calculation of estimated multipliers (factors).
- Application of multipliers to the company being valued.
- Selecting the value of the company being valued.
- Making final amendments.
The search for similar companies when assessing a business (enterprise) using a comparative approach should be based on fairly strict selection criteria, the most important of which are:
Industry and product identity;
Comparability in scale, degree of production diversification, business maturity, development strategy;
Comparability of financial characteristics;
Geographical proximity
ANALOGUE COMPANY METHOD of comparative approach to business valuation
Business valuation using the analogue company method assumes that similar businesses have a fairly close relationship between price and key financial indicators such as profit, cash flow, dividend level, sales revenue, production capacity, asset value. This ratio is called the multiplier. In the assessment process, 4 groups of multipliers are usually used:
- Price/earnings (P/E); price/cash flow.
- Price/Dividend (P/D).
- Sales price/revenue (P/So); price/physical production volume.
- Price/asset value (P/VA).
A conclusion about the price of an enterprise, depending on a specific situation, can be made on the basis of any multiplier, or any combination thereof.
Price/earnings multiple; price/cash flow.
Using this multiplier requires compliance with the following rules.
1. The income base can be determined different ways, i.e. before and after accounting for items such as accrued depreciation, interest, taxes, dividends, and principal. The main requirement is a clear definition of the capitalized income stream and achieving full compliance between it and the selected multiplier of the analogue company.
2. The choice of multiplier depends not only on the financial information received, but also on the structure of enterprise assets. The price/cash flow factor is more appropriately used to evaluate companies that own real estate whose book value is decreasing, although the market price may be increasing. For companies whose assets are dominated by rapidly aging equipment, a more appropriate basis is net profit.
3. Since the business valuation is carried out on a specific date, the multiplier of peer companies should be calculated based on reports that are as close as possible to the effective valuation date.
4. The income base is determined on the basis of retrospective data for a number of years using the simple average, weighted average or trend line method. It is important that both the depth of the retrospective and the method for determining the average income base for the business being valued and the analogue company coincide.
5. The price/earnings multiplier can be calculated both for the enterprise as a whole and per share. When determining the price of shares, it is necessary to take into account the change in their number in circulation during the analyzed period.
6. Using a large number of similar companies can result in a spread of the multiplier value. The analyst must establish a reasonable range of variation that indicates true comparability, or be able to explain the reason for the occurrence of significant deviations in order to take it into account when determining the final price.
Price/dividend multiplier.
This method is based on determining the dividend yield of publicly traded shares for comparable companies.
For example: The dividend yield of a share of a similar company, calculated as the ratio of the market price of the share to the amount of dividend payments, is 12.5%, and the company being valued has paid (or is capable of paying) dividends in the amount of 400,000 rubles. per share.
The value of the stock of the company being valued, determined by the dividend capitalization method, will be 400,000/0.125 = 3,200,000 rubles.
Multiplier price/revenue from sales, price/actual production volume.
This multiplier is usually used in combination with other methods, but it is most appropriate to use it when assessing the service sector. The method of capitalization of revenue from the sale of products and services is a modified version of profit capitalization, because It is assumed that in a similar business the level of profitability of products is almost the same. However, the appraiser must necessarily analyze the stability of sales revenue volumes in the future, the consequences of a possible change of a key figure in the business, and identify differences in the capital structure of the companies being compared.
The price/sales revenue multiplier can be calculated as the ratio of the share of profit in sales revenue to the profit capitalization ratio.
For example: The company's profit is 25% of its sales, and the required return on investment in this industry is 31.4%. In this case, buyers will be willing to pay 0.25/0.314 or 80% of the annual revenue from sales of products and services for the company. If in a year a company sells products worth 500 million rubles, then the company price will be 500x0.8 = 400 million rubles. It is advisable to use the price/physical volume multiplier to evaluate a business with a narrow range of production and services.
Price/asset value multiplier
Comparative business valuation, based on the value of assets, is the most complex, time-consuming and expensive. This approach is more appropriate to use when evaluating holding companies, or in cases where it is necessary to sell a significant part of the assets in a short period of time. The calculation of the price/asset value multiplier is carried out in two stages.
Stage 1 - determining the value of net assets.
Stage 2 - determining the relationship between the value of shares and the value of assets.
The starting basis for the value of net assets is their book value.
Book value is the most readily available information; however, it does not adequately reflect either the net asset value or the value of the business itself. Therefore, the appraiser must make appropriate adjustments. Typically, an appropriate specialist, an appraiser, is hired to adjust the book value of real estate. The standard for adjusting the book value of production assets is replacement cost taking into account depreciation, i.e. the analyst must estimate the current replacement cost of the equipment and its useful life.
In the second step, the analyst must determine the relationship between the company's net asset value and the value of the shares being evaluated. The principle “the sum of all parts does not necessarily equal the whole” requires the analyst to determine a fairly accurate value of the value of private assets attributable to the shares being sold.
To increase the objectivity of the assessment, the analyst can use the excess profit method and the debt-free valuation method.
Excess Profit Method consists of adjusting the company's price by the amount of capitalized profit, which is ensured by the company's goodwill and other intangible assets. Let's consider the main stages of assessment:
1. Determination of the value of net tangible assets.
2. Normalization of the profit actually received by the company.
3. Calculation of profit received through the use of tangible assets. For this, the industry average rate of return on tangible assets will be multiplied by their cost.
4. Determination of the amount of excess profit as the difference between normalized at the expense of material assets.
5. Capitalization of excess profits.
6. Determination of the full value of the business, as the sum of the value of the business as the sum of the value of net assets and the premium obtained by the method of capitalization of excess profits.
The debt-free valuation method is used if there are significant differences in the capital structure of the business being valued and comparable companies. If a peer company raises debt on a long-term basis, then the company being valued can use only its own capital (or vice versa). The debt-free valuation method is based on the conditional assumption that the analogue company, like the one being valued, does not use long-term loans. Based on this assumption, the following calculations are made.
1. The conditional base for the multiple of the analogue company is determined. Profit (cash flow) increases by the amount of interest paid by the company, adjusted for the tax rate.
2. The estimated market value of the invested capital of a peer company as the sum of the market value of equity and the market value of debt.
3. The multiplier “Market price of invested capital / Profit (cash flow)” is calculated on a debt-free basis.
4. The market value of the company being valued is determined.
5. If the company being valued has long-term debt, then to determine the final price, the market amount of the collateral must be subtracted from the total obtained in paragraph 4.
Since there are practically no sufficiently similar companies, a number of factors must be taken into account to increase the reliability of the assessment.
If the companies do not match the types of activities and some of them are unattractive to the buyer, a portfolio discount is applied to the price. If a company owns non-productive fixed assets, then they must be assessed separately from fixed assets for production purposes, taking into account compensating factors (property tax, the risk of changes in market prices in the future, etc.), and then determine the final, total price. It is necessary to take into account the sufficiency of one’s own working capital, as well as the need for capital investments to maintain the business at a given level. If financial analysis reveals an insufficiency of one’s own working capital or the need for capital expenditures, this amount should be deducted from the initial value of the company, the appraiser must take into account the liquidity factor, i.e. the lack of liquidity inherent in closed companies requires an appropriate discount
The final stage of business assessment comparative method is to bring together the results obtained. Naturally, the use of the above multipliers (after all necessary adjustments) gives the appraiser various options for the value of the company. The selection of the final outcome is based on the analyst's use of subjective but sufficiently reliable judgment to assign percentage weight to each approach. Typically, if a company's assets are small compared to the profits it makes, the profit capitalization method should be relied upon. If there is practically no profit, then an assessment based on the “price/asset value” multiplier will be more subjective.
The main disadvantage of this method is the lack of a clear mathematical model that allows us to objectively weigh each of the applied multipliers. The specific weight of the methods used is determined by the analyst independently. However, the visibility and accessibility of the final count allows for the necessary recalculation in controversial situations.
TRANSACTION METHOD comparative approach to business valuation
The transaction method is a type of comparative approach to business valuation. The comparative base in this case is information on mergers and acquisitions of companies. This method is used by analysts when evaluating controlling stakes or small firms. The main differences between the transaction method and the capital market method are as follows:
- The capital market method is based on data on current prices for shares of peer companies, the transaction method uses information on previously completed sales of controlling stakes, mergers, and acquisitions.
- The capital market method is used to evaluate a minority stake; the transaction method makes it possible to evaluate the company as a whole or a controlling stake.
The sequence and content of the main stages of business valuation practically coincides with the capital market method. The appraiser uses similar criteria when selecting comparable companies. Financial analysis and comparison provides information about the degree of risk for a distant business, which makes it possible to determine the optimal value of the valuation multiplier. Financial analysis involves studying the capital structure, the level of liquidity of operating ratios, comparing balance sheets, profit and loss statements, and risk forecasting. The next stage - calculating valuation multiples - due to the complexity of obtaining information on similar transactions, is usually limited to the price/earnings and price/book value of assets ratios. Adjustments should take into account non-operating assets, excess assets, excess or deficiency of own working capital, insurance risk, liquidity.
The significant similarity between these two methods allows the transaction method to be used to value a minority stake and, conversely, the capital market method can be used to value the company as a whole. This is possible if, in the first case, we make allowances for the non-controlling nature of the package being evaluated. In the second case, the value of the company should be increased by the amount of the control premium. Thus, in both cases, the valuer must take into account the additional value created by the control.
The most common method of calculating control premiums is to compare the price at which shares of a peer company were trading at free market some time (usually two months) before the merger or acquisition transaction. The difference in price, expressed as a percentage of the price of the non-controlling interest, represents the value of the control premium. The result obtained is the basis for determining a reasonable control premium, which the appraiser can adjust based on the available information on the company being valued.
METHOD OF INDUSTRY COEFFICIENTS of a comparative approach to business (enterprise) valuation
The method of industry coefficients of the comparative approach to business valuation is used for indicative estimates of the value of an enterprise. It is based on the use of recommended relationships between price and certain financial parameters. Industry coefficients are calculated based on long-term statistical observations special research institutes for the sale price of the enterprise and its most important production and financial characteristics. As a result of the generalization, fairly simple formulas for determining the value of the enterprise being valued were developed. The experience of Western appraisal firms shows:
- accounting firms and advertising agencies sold for 0.5 and 0.7 annual revenue, respectively;
- restaurants and travel agencies– respectively for 0.25 – 0.5 and 0.04 – 0.1 gross revenue;
- gas stations - for 1.2-2.0 monthly revenue;
- enterprises retail– for 0.75-1.5 of the net annual income, increased by the cost of equipment and inventories owned by the company being assessed;
- machine-building enterprises - for 1.05-2.5 of the amount of net income and reserves.
This approach of the organization is based on market information and takes into account the current actions of sellers and buyers of shares of organizations. In other words, the most probable value of the business value of the organization being valued may be the actual sales price of a similar organization recorded on the stock market.
The main advantage of the comparative approach is that the value of an organization’s business is actually determined by the market, and the valuation only adjusts the real market price of the analogue for better comparability, whereas when applying other approaches to valuing an organization’s business or shares, the value is the result of a calculation. In accordance with this, the main condition for applying the comparative approach when evaluating a business or shares of an organization is the presence of an active stock market, since this approach involves the use of data on actually completed transactions with shares of similar organizations.
The disadvantage of the comparative approach is that it does not take into account the development prospects of the organization in the future, since it is entirely based on retrospective information.
Ø Industry coefficient method, or the method of industry ratios, based
on the use of recommended relationships between the price of the organization’s business and certain financial parameters. Industry coefficients are calculated on the basis of long-term statistical observations by special research institutes of the selling price of various operating organizations and their most important production and financial characteristics. As a result of many years of generalizations, in countries with developed market economies, fairly simple formulas have been developed for determining the value of an organization’s business.
This method has not yet received sufficient widespread use in Russian practice business assessments due to the lack of necessary information, the collection and synthesis of which require a long period of time and a certain economic stability.
Ø Capital market method , or the method of a similar company, is based on the use
prices formed by the open stock market. That is, when evaluating an organization’s shares, the basis for comparison is the price per unit share of peer companies, and in pure form This method is used to value a minority stake.
The process of evaluating shares (business) of an organization using the capital market method includes the following main stages:
Collection of necessary information;
Selection of analogue organizations;
The financial analysis;
Calculation of valuation multipliers;
Selecting the multiplier value;
Determination of the final cost.
The capital market method for valuing shares (business) of an operating organization is quite complex and labor-intensive to use. The results obtained depend on the possibility of studying a wide range of analogue organizations.
Ø Sales method , or transaction method, is based on the use of the purchase price
the analogue organization as a whole or its controlling stake.
The technology of using the sales method coincides with the technology of the comparative approach to business valuation. The difference lies only in the type of initial price information: the comparative approach to business valuation uses the price of one share as an initial one, which does not provide any elements of control, and the sales method uses the price of a control or complete package shares, including a premium for control elements. Accordingly, the sales method is used to evaluate the full or controlling stake in the organization.
Cost-effective approach
The cost approach to business valuation considers an organization, first of all, as a property complex used to carry out business activities.
The essence of this approach is that all assets of the organization are first assessed and summarized (intangible assets, buildings, machinery, equipment, inventories, accounts receivable, financial investments, etc.). Next, the current value of the organization’s liabilities is subtracted from the resulting amount. The final value shows the value of the organization's equity capital. For calculations, the organization's balance sheet data is used as of the valuation date (or as of the last reporting date).
The main advantage of this method is that it is based on reliable factual information about the condition property complex organizations; The main disadvantage is that it does not take into account the organization's future business opportunities to generate net income. In addition, some methods, such as the asset accumulation or liquidation value method, are quite complex and time-consuming to use in practice.
Ø Substitution method used to determine the replacement cost of an organization.
Using this method, an organization is assessed based on the costs of completely replacing assets while maintaining its economic profile. It consists in determining the costs in current prices for the construction of an organization that has a similar utility to the one being assessed, but was built in a modern architectural style, using progressive design and technological standards, using new materials, structures and equipment. When implementing the replacement method, adjustments are made for the physical, functional and economic (external) wear and tear of the organization being assessed.
The most difficult aspect of applying this method is determining the unit cost of constructing a functional analogue of the organization being assessed. Some specialized research institutes are developing cost per consumer unit indicators construction products(including for industrial buildings and structures), and calculations are made at basic, current and forecast price levels based on quarterly prices for construction resources.
The method is focused only on the assessment of tangible assets and is acceptable for capital-intensive organizations. It should be noted that the substitution method has always been used in Soviet practice of cost estimation when developing feasibility studies for the construction of an object. Currently, it seems possible to use this method for approximate calculations of the market value of an organization (with appropriate adjustments for all types of depreciation of the organization being valued).
Ø Liquidation value method when assessing an organization’s business, it is applied,
when an organization is in bankruptcy or liquidation, or there are serious doubts about the organization's ability to remain operational and continue its business.
Liquidation value is the net amount of money that the owner of an organization can receive upon liquidation of the organization and closure of its business, separate sale of assets and settlements with all creditors.
There are three types of liquidation value:
Ordered, when the sale of the assets of the liquidated organization is carried out within a reasonable period of time so that the highest possible sale prices for the assets can be obtained;
Forced, when the organization's assets are sold as quickly as possible, often simultaneously and at one auction;
The cost of cessation of existence of the assets of an organization, when the assets of the organization are not sold, but are written off and destroyed, and the value of the organization in this case is a negative value, since certain costs are required to destroy material assets.
The sequence of work for calculating the orderly liquidation value of an organization, i.e., the value that can be obtained through the orderly liquidation of the organization’s business, includes:
Development calendar schedule liquidation of the organization's assets,
Calculation of the current value of assets taking into account the costs of their liquidation,
Adjustment of the current value of assets,
Determining the amount of the organization's obligations,
Subtracting the amount of the organization's liabilities from the current (adjusted) value of assets.
The method gives a minimum valuation value and allows you to determine the lower level of business value.
Ø Asset accumulation method used to determine market value
organizations. The essence of the method is to determine the market value of each asset and liability of the balance sheet and subtract all the organization's debts from the total assets.
In the case of implementing the asset accumulation method, normalization financial statements has certain specifics: adjustments are made not to the organization’s income and expenses for the historical period, but to the content of the items in the organization’s latest balance sheet.
Calculation of the market value of an organization by the method of asset accumulation includes next steps:
Assessment of the market value of the organization’s intangible assets,
Assessment of the market value of real estate organization property,
Assessment of the market value of machinery and equipment,
Inventory valuation,
Valuation of accounts receivable,
Grade financial investments,
Estimation of deferred expenses,
Assessment of the organization's liabilities in terms of:
a) targeted funding and revenues;
b) borrowed funds;
c) accounts payable;
d) settlements of dividends;
e) reserves for future expenses and payments;
f) other liabilities (long-term and short-term),
Determining the value of equity by subtracting the current value of all liabilities from the reasonable market value of all assets.
The asset accumulation method is used to evaluate the business of operating organizations with significant assets, holding or investment companies (which do not themselves generate income), when the organization does not have retrospective data on production economic activity(for example, a newly created organization) when the organization's activities are largely dependent on contracts (for example, construction organizations), or the organization does not have regular customers, or, finally, a significant part of the organization’s assets consists of financial assets(cash, accounts receivable, marketable securities, etc.).
Although the method of accumulating assets is quite labor-intensive to use, it is often the only possible one in these cases.
Ø Adjusted book value method or net asset method
organizations– most simple methods valuation of company assets. To obtain the net book value of assets, all current and long-term liabilities of the firm are subtracted from the balance sheet currency value. As a result, the value of the company's equity capital is determined, i.e. the value of the net book value of assets.
Adjusting balance sheet items in order to assess the value of an organization consists of both normalizing financial statements (including balance sheet items) and recalculating balance sheet assets and liabilities into current prices. Normalization of financial statements is the introduction of “normalizing” amendments to balance sheet items and to the income statement that are characteristic of a normally operating organization.
The amendments concern:
One-time net income and expenses (they are excluded from the calculations);
Net income and expenses on excess or non-operating (non-productive or redundant) assets (they are excluded from the calculations);
Unusual expenses of the owners of the organization themselves (they are also excluded from the calculations).
Conversion of asset items of the organization's balance sheet into current prices consists of:
In determining the residual replacement value of fixed assets and intangible assets;
In determining the actual current value of work in progress;
In analysis and evaluation according to current prices inventories, costs and Money;
In the analysis and determination of the current value of the organization's debts.
After such adjustments to balance sheet items, the net asset value is calculated.
It should be noted that the value obtained using this calculation method characterizes the lowest level of value of the organization being assessed.
The considered business valuation methods have a number of disadvantages:
ü difficulty in finding information and cumbersome calculations;
ü the presence of a large number of adjustments related to the opacity of financial statements;
ü the complexity of long-term planning makes it difficult to use income valuation methods; a retrospective of actual data for past periods is mainly used;
ü accounting valuation of assets leads to an understatement of net asset value;
ü there is no adequate basis for comparison with peer organizations.
Business valuation should become the basis for solving the problems of developing plans and strategies for the development of the organization, assessing the effectiveness of management, assessing the effectiveness of the organization and determining the real value of one share. Therefore, business valuation methods must be constantly improved.
Using business assessment on a regular basis should be as simple as possible, and the result should be clear. Data should be used for assessment management accounting, which must be adapted for these purposes. Business assessment must meet the requirements of simplicity, validity, frequency and information content. In this regard, it is necessary to develop a methodology for determining the growth rate of cash flows or make forecasts for periods of up to five years; a market revaluation of all fixed assets and, if necessary, intangible assets is necessary.
1.7.Managing the financial condition of a commercial organization: goals and content. The essence of the concepts of “financial condition”, “financial stability”, “creditworthiness” and “investment attractiveness” of an organization.
Financial condition of the organization is a complex concept that is characterized by a system of indicators reflecting the availability, placement and use financial resources organizations. Financial condition is the result of the interaction of all elements of the system financial relations organization and therefore is determined by the entire set of production and economic factors .
The financial condition of enterprises characterizes the placement and use of enterprise funds. It is determined by the degree of implementation financial plan and replenishment measure own funds at the expense of profit and other sources, if they are provided for by the plan, as well as the speed of turnover of production assets and especially working capital. [2.]
The financial condition of an organization depends on the results of its production, commercial and financial activities, and it can be stable, unstable and crisis. The ability of an organization to make timely payments and finance its activities on an expanded basis indicates its good financial condition.
A stable financial condition, in turn, has a positive impact on efficiency production activities, meeting production needs necessary resources. That's why financial activities How component economic activity is aimed at ensuring timely receipts and expenditures monetary resources, implementation of calculation discipline, achieving rational proportions of equity and borrowed capital and its most effective use. Financial condition is an indicator characterizing the viability of an organization and one of the main criteria of its competitiveness.
Purpose of analysis financial condition organizations- promptly identify and eliminate the causes of undesirable deviations in the financial condition of the organization, determine reserves for improving the financial condition of the organization and its solvency.
The sequence of analyzing the financial condition of an organization involves going through three stages.
1)Assessment of the current state of the organization and its changes compared to the previous period. The task of this stage is not only to analyze the dynamics of indicators, but also to determine the acceptable level of reduction in coefficients. In some cases, a temporary decrease in performance is deliberately allowed. For example, when carrying out a large-scale investment program, trying to build and equip production in record time, an organization can make investments that exceed its current financial capabilities.
2) Determination of the reasons that led to a change in the financial position of the organization. At this stage, it is necessary to establish not only the causes of problems, but also the reasons for successes, to identify what actions or changes in the organization external environment led to their appearance.
3) Development of an action program for the future. Decision options may be different and change from period to period. During periods of declining profitability (for example, a seasonal drop in demand), monitoring working capital management (volumes of purchased inventories, timely delivery of components, accuracy of planned production volumes and lack of warehouse overstocking) and determining the permissible amount of capital investments becomes especially important. Reduction current assets can create an additional reserve to finance capital investments - for example, by reducing inventories (of course, maintaining the volume necessary for uninterrupted production) or accelerating the receipt of funds from debtors.
Depending on the goals set, the analysis of the financial condition may only include an express analysis, which gives a clear and simple assessment of it and allows you to see the dynamics of the organization’s development. The point of express analysis is to select a small number of indicators and constantly monitor their dynamics. The selection of such indicators is subjective and is made by the analyst independently. If necessary, express analysis can be supplemented with detailed analysis.
The main source of information for analyzing the financial condition is the balance sheet of organizations (Form No. 1 of annual and quarterly reports), the profit and loss statement (Form No. 2 of annual and quarterly reports), the report on capital assets (Form No. 3 of annual reports) , statement of cash flows of the organization (form No. 4 of the annual reports), appendix to the balance sheet (form No. 5 of the annual reports), etc.
Financial stability - an integral part of the overall sustainability of the enterprise, balance financial flows, the availability of funds allowing the organization to maintain its activities for a certain period of time, including servicing received loans and producing products. It largely determines the financial independence of the organization.
Financial stability is an indicator of solvency over a long period of time. In contrast, creditworthiness is an indicator that is important not to external, but to internal financial services.
Creditworthiness- these are the capabilities of economic entities market economy pay off their short-term and long-term obligations in a timely manner and in full due to the inevitable need to repay the loan.
Investment attractiveness- an independent economic category, characterized by the stability of the financial condition of the enterprise, return on capital, stock price and the level of dividends paid. Along with this, investment attractiveness is formed due to the competitiveness of products, the customer focus of the enterprise, expressed in the most complete satisfaction of consumer requests, of no small importance for strengthening investment attractiveness has a level innovation activity within strategic development enterprises.
The main feature of the comparative approach to business valuation is the orientation of the final value, on the one hand, to the market prices of purchase and sale of a similar business, and on the other hand, to the actually achieved financial results. The main advantage of the comparative approach is that the appraiser focuses on the actual purchase and sale prices of similar enterprises, which are determined by the best appraiser - the market. In addition, another advantage is the accounting of specific financial documents of the enterprise.
However, this approach has the following serious disadvantages that limit its use in valuation practice:
The calculation basis is the financial results achieved in the past. The development prospects of this enterprise are largely ignored.
A comparative approach is only possible if there is a variety of available financial information not only for the company being valued, but also for analogue companies selected by the appraiser, which is not always realistic in practice.
Since in practice there are no absolutely identical enterprises, the assessment requires making rather complex adjustments, which reduces the reliability of the result.
The comparative approach involves the use of three main methods:
1. The company's method is analogue.
2. Transaction method.
3. Method of industry coefficients.
The peer company method (or capital market method) is based on the execution of prices generated by the open stock market. The basis for comparison is the price per unit share. joint stock companies open type.
The transaction method (or sales method) is focused on the acquisition prices of the enterprise as a whole, or a controlling stake.
The industry coefficients method (or industry ratio method) is based on the use of recommended relationships between price and certain financial parameters. For example, the business valuation literature provides the following examples:
The price of a retail trade enterprise = 0.75 - 1.5 of net annual income + the cost of equipment and inventories that this enterprise has.
Let us explain the essence of the comparative approach using the example of a similar company’s method.
When implementing this method, an enterprise similar to the one being valued that was recently sold is selected. Then the relationship between the sales price and any financial indicator for a similar enterprise is calculated. This ratio is called the price multiplier. Multiplying the multiplier value by the same base financial indicator of the company being valued, receive its preliminary value. After this, final amendments are made.
Example.
It is necessary to evaluate an enterprise that made a profit of 12.5 million rubles in the last financial year. The appraiser knows that a similar company was recently sold for RUB 600 million. (CTA is the cost of the analogue). The emergency of the analog company for the same period amounted to 60 million rubles. It is required to estimate the preliminary value of the company.
In valuation practice, two types of multipliers are used – interval and moment.
The essence of the comparative (market) approach to assessing the value of an enterprise and its main valuation methods
This method is based on the principle of substitution - the buyer will not buy a property if its cost exceeds the cost of purchasing a similar property on the market that has the same utility.
The comparative (market) approach is mainly used where there is a sufficient database of sales transactions.
The main advantages of the comparative approach:
- 1) the appraiser is guided by the actual purchase and sale prices of similar enterprises. The price is determined by the market, and the appraiser is limited only to adjustments that ensure the comparability of the analogue with the object being valued;
- 2) the assessment is based on retroinformation and, therefore, reflects the actual results of the production and financial activities of the enterprise;
- 3) the price of the actual transaction takes into account the situation on the market as much as possible, which means it is a real reflection of supply and demand.
At the same time, the comparative approach has a number of significant disadvantages: it ignores the prospects for the development of the enterprise in the future; obtaining information from peer companies is quite complex process; the appraiser must make complex adjustments, introduce amendments that require serious justification to the final value and intermediate calculations. Resolving these contradictions in practice appraisal activities implemented by using different approaches to assessment (costly, profitable).
Thus, the possibility of applying a comparative approach depends on the presence of an active financial market, the availability of financial information and the availability of services that accumulate price and financial information.
The comparative (market) approach includes three main methods: the industry ratios method, the capital market method and the transactions method.
The selection of companies for comparison is carried out according to the following criteria: belonging to a particular industry or region; type of products or services produced; diversification of products or services; stage life cycle, where the company is located; size of companies, strategy of their activities, financial characteristics.
The essence of the industry coefficients method is that, based on an analysis of business sales practices in a particular industry, a certain relationship is derived between the sales price and some indicator. This method is mainly used to evaluate small companies and is of an auxiliary nature. As a result of generalization Quite simple formulas for determining the value of the enterprise being valued were developed.
The experience of Western appraisal firms shows:
restaurants and travel agencies - 0.25 - 0.5 and 0.04 - 0.1 of gross revenue, respectively;
gas stations - 1.2 - 2.0 of monthly revenue;
retail trade enterprises - 0.75 -1.5 of the amount: net income + equipment + inventories;
machine-building enterprises - 1.5 - 2.5 of the amount: net income + reserves.
The capital market method is based on the market prices of shares of similar companies. This method is typically used to assess the value of companies whose shares do not participate in transactions on the stock market, so it is usually called the peer company approach, since it allows you to determine the value of shares based on the actual transaction prices of similar (comparable) companies.
The price multiplier is a coefficient showing the relationship between the market price of an enterprise or share and the financial base. Financial base is a meter that displays the financial results of an enterprise, which include not only profit, but also cash flow, dividend payments, sales revenue and other indicators.
The most commonly used valuation multiples are:
price/gross revenues;
price/earnings before tax;
price/net profit;
price/book value of equity.
The choice of the most appropriate multiplier is determined in each specific situation.
The transaction method (or sales method) is a special case of the capital market method, based on an analysis of the purchase and sale prices of controlling stakes in peer companies or an analysis of the purchase prices of entire enterprises. The share price is determined based on the results of transactions on the world market. stock markets. This method is based on determining multipliers based on financial analysis and forecasting. Financial analysis and comparison of indicators are carried out in the same way as in the capital market method.
The main difference between the transaction (sales) method and the capital market method is that the first determines the level of value of a controlling stake that allows full management of the enterprise, while the second determines the value of the enterprise at the level of a non-controlling stake. The transaction method, therefore, takes into account those transactions with blocks of shares of a peer company that are characterized as mergers and (or) acquisitions.
The value of a controlling stake is usually reflected in the price premium that a small stake commands. The so-called “control premium” can reach 35-40%.
When choosing a method for estimating the value of shares and an enterprise, it is necessary to take into account the factor of the interests of shareholders who have controlling stakes in companies and small shareholders. Here it is appropriate to consider the impact of the size of the shareholding on the problem of assessing their value. In the practice of estimating the value of enterprise shares, foreign experts use the following main valuation methods.
- 1) If the size of the shareholding is less than 10%, that is, there is practically no control on the part of the small investor over the company’s affairs, dividend income is used to evaluate the value of the shares.
- 2) If the size of the package is more than 25%, when it is possible to block special decisions (resolutions), however, the degree of direct control is small (depending on the distribution of other shares, in particular preferred ones), dividend income is also used.
- 3) When the package size is from 51 to 75%, ordinary resolutions are possible. The valuation of the controlling stake is carried out on the basis of the profitability of the shares.
- 4) When the size of the shareholding is more than 75%, when special resolutions are possible, effective control is exercised, the assessment of the controlling stake is calculated based on the profitability of the shares.
These decisions are explained by the following circumstances.
The size of the investment is usually one of the most obvious factors differentiating a private investor from a corporation. This is important when valuing stocks because the size of the investment often conflicts with the reasons for the investment, thus determining the specific factors in which the investor is interested. A company that acquires a controlling stake in another company is much more interested in future earnings than in dividend amounts, which are the main interest of small investors.
When valuing a shareholding that is significant but not large enough to provide meaningful control, it is important to remember that the market may be limited, meaning the likely price may be lower than that of a smaller investor. This is true for both listed and unlisted shares.
