Combined methods of business valuation. Business valuation. How to evaluate a business before buying it. According to industry analogues

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From this article you will learn:

What is company value and why is it needed?

What types of company value are there?

How to calculate the value of a company

How to quickly calculate the value of a company

What are the features of company value management?

How to increase company value

A business exists not only to receive funds for the goods or services for which it was created. Business is also an investment. Many entrepreneurs make money by organizing and launching new companies with the aim of further selling them. Although this is far from the only reason for selling a business. When a company goes bankrupt or cannot solve its problems on its own, there is often a need to assess the value of the company before selling it. In this article we will talk about how to understand everything related to the value of your business and avoid difficulties.

Why is it necessary to know the value of a company?

Now the overwhelming majority of companies in Russia do not consider assessing the value of a company to be something necessary, and their owners often do not see the point in this until the business reaches high speeds and the public arena. Until then, the assessment is perceived as a reason for the owner’s personal pride.

There are actually about twenty economic goals for calculating the value of a company, but there are only three most important ones:

This provides objective data on the state of the business and the effectiveness of the management apparatus in it. By reacting to them, owners can always correct course in time.
It is impossible to approach investors for additional cash injections without information about the real value of the company, otherwise you risk not getting what you came for.
Valuation makes it possible to take into account assets arising during the course of economic activity companies.

Of course, assessing the value is necessary not only for buying or selling ready-made business. This indicator is important For strategic management company. A clear understanding of the value of your company will also be required when issuing securities, shares and entering the stock market. It is also significant that no investor will agree to invest their money where the company’s value has not been assessed.

Enterprise business valuation (business valuation)- nothing more than determining the value of the company as non-current and current assets that can bring profit to the owners.

When conducting an assessment examination It is necessary to estimate the value of the company's assets:

real estate
equipment and machines,
stocks in warehouses,
all intangible assets,
financial investments.

Business is an investment product. Any investment in a company is made only with a long-term view of returning funds with a profit. Since quite a lot of time passes between investments and income in business, to determine the real value of the company, a specialist analyzes its activities over a long period and separately evaluates:

past, existing and future income,
efficiency of the entire operation of the enterprise,
business prospects,
competition in the market.

Once this data is obtained, the company being evaluated is compared with other similar firms. Only a comprehensive analysis helps to calculate the real value of a company.

Valuation of an enterprise or company is the process of determining the maximum probable price of a business as a product when it is sold to other owners. Moreover, any enterprise can be sold either entirely or in parts. The company, as the property of its owner, can be insured, bequeathed or used as collateral.

What are the different types of company value?

The activities of the appraiser are regulated by the federal standard “Purpose of valuation and types of value”(FSO No. 2), which defines several main types of value of any valuation object:

Market price.

The market value of the property being valued, for example a business, is the most likely price at which it can be sold on the day of valuation under the following conditions: the alienation takes place on an open market with existing competition, the participants in the transaction act reasonably and have complete information about the subject of sale, and its price is not affected by any force majeure circumstances.
The market value of the company is required in the following cases:

when the company’s property or the enterprise itself is seized for government needs;
when the price of placed shares that the company buys by decision of the meeting of shareholders or the supervisory board is determined;
when you need to determine the value of a company acting as collateral, for example in a mortgage;
when the size of the non-monetary part of the company’s authorized capital is determined;
when the owner goes through bankruptcy proceedings;
when it is necessary to determine the amount of property received free of charge.

The market value of a company is used in all situations where tax issues, both federal and local, are resolved.

It is precisely this type of value that is always determined in purchase and sale transactions of a business or any part of it, since market value is the most objective indicator and does not depend on the wishes of the participants in the process, it corresponds to the real economic situation.

Investment cost– the value of a company that is related to the profitability of the enterprise for a particular investor under existing conditions.

This type of cost depends on personal investment requirements. Every investor invests his money in a business with the goal of making a profit in excess of the amount of invested capital, and not just the return of this “debt”. So the investment value of a company is calculated based on the expected income of the investor and the capitalization rate of these investments. This type The value of a company must be calculated when buying and selling a business, merging, or acquiring companies.

Liquidation value.

This cost option is calculated in a situation where the company’s work is expected to end for some reason (for example, reorganization, bankruptcy or division of the company’s property). When determining the liquidation value of a company, they find the most likely price at which the company can be sold for the shortest possible time exposure, provided that the owner of the object of sale is forced to enter into a transaction to alienate his property.

Cadastral value.

This is the market value approved and established by legislation in the field of cadastral valuation of real estate. It is this indicator that mass valuation methods should arrive at in the case of the cadastral value of an object. This type of value is calculated most often for property tax purposes.

What documents are needed to carry out an assessment of the company's value?

Duplicates or copies of the constituent documents of the enterprise.
Documents on the inventory of company property.
Written confirmation of the company structure and types of its economic activities.
For joint stock companies, duplicate reports on the issue of securities and copies of prospectuses will be required.
Documentation on fixed assets.
If there is real estate for rent, then you need to provide copies of the contracts.
To assess the value of a company, it is required financial statements for 3-5 years - about all the profits and losses of the business.
The final conclusion of the audit, if it was carried out at the enterprise.
A detailed list of all assets: tangible and intangible, in shares, bills, etc.
Decoding of receivables and payables.
If the company has subsidiaries, then it is necessary to collect information about them and provide financial documentation for them.
A ready-made business development plan for the next 3-5 years, containing potential gross revenue, investments, expenses and calculation of net profit in each next year.

This is a preliminary list of documents that the appraiser will need to conduct an examination of the company’s value, however, it can be shortened or supplemented at the request of the specialist.

How to find out the value of a company

Obviously, one of the most objective indicators of performance existing business is its cost. It makes it possible to calculate the price at which a company can be sold on the open market in a competitive environment, or to predict the future value of the company's benefits. The question of how to assess the value of a company is a serious practical task of high importance for any entrepreneur.

To obtain an adequate assessment, first of all it is worth define the main goal cost calculation procedures. The most likely options are:

Determining the value of the company was required to complete certain legal actions. In this case, they turn to a licensed independent appraiser, who draws up his conclusion in the “Appraisal Report”, regulated Federal law № 135.
You need to find out how much your business is really worth on the market; in this situation, the official “Valuation Report” will no longer be needed.

The fundamental difference when carrying out these procedures is not the quality of the appraiser’s work, but the cost of services and the form of the conclusion. In the first case, the specialist is obliged to comply with the requirements of the current legislation regulating his licensed activities, and usually these requirements significantly increase the price for the work.

In the second case, you will need to independently develop and clearly formulate a task for the appraiser, listing all the procedures you are interested in, factors of the company’s value and parts of the business that are subject to examination. So, as a result, you will receive only the information you need.

Business valuation means calculating its value as a property complex, which leads to profit for the owner.

To calculate the value of a company, you need to take into account all its assets, intangible and tangible: real estate, technical equipment, cars, inventory, financial investments. Next, past and potential income, enterprise development plans, competition and the economic environment must be calculated. At the end of the comprehensive examination, the data is compared with information about similar companies, and only after this the real value of the company is formed.

For the above calculations, it is applied three methods:

profitable,
expensive,
comparative.

However, in fact, there are so many situations that they are segmented into classes, each of which requires its own approach and corresponding method.

To use the most appropriate calculation method, you need to first analyze the situation, the circumstances at the time of assessment and other conditions.

For some types of business, the valuation of the company is usually carried out based on commercial potential.

For example, in the case of hotel business we deal with guests as a source of income for the company. In a method called profitable, it is this source that will be compared with operating expenses to assess the profitability of the enterprise. This method is based on discounting the profit from renting out the company's property. Finally, after the assessment, both the cost of buildings and land are included.

The company's value is assessed using cost method , when we are talking about a business that is not subject to purchase and sale, as is the case with government agencies or clinics. This assessment takes into account the cost of constructing the building, depreciation and wear and tear of the property.

Comparative method used when there is a market for such a business. This market method valuation, which is based on an analysis of similar properties already sold in other markets.

Hypothetically, all of the above approaches must give the same value. But in fact, market conditions are not ideal, businesses are often inefficient, and information is insufficient and imperfect.

Determining the value of a company in each of these approaches allows use of various assessment methods:

For the income approach it is:

capitalization method, which is used in the case of established companies that managed to accumulate assets in previous periods;
discounted cash flow method for young business, which will be developed in the future. Used when the company has a potentially promising product.

For the cost approach, the following are used:

the net asset method - when it comes to reducing production volumes or closing a business on the initiative of the investor;
and the company's liquidation value method.

For the comparative approach these are the methods:

transactions, which is used in situations similar to the conditions for applying the net asset method;
industry coefficients that evaluate operating enterprises that do not plan to close in the period after the examination;
capital market. This method is also intended for “living” companies.

Please note that the last three methods are only valid if there is a similar business that matches the type of the valuation object, otherwise the analysis will not be indicative. Next, we’ll briefly talk about the use of these methods by which the value of a company is calculated.

If you require an estimate of cost for the forecast period, it will be determined discounting method cash flows . In order to bring potential income the discount rate is applied to the current value.

In this scenario, the company’s value is calculated according to the following formula:

P = CFt/(1 + I)^t,

Where P- price,

I- discount rate,

CFt- cash flow,

t– this is the number of the time period during which the assessment occurs.

Do not forget to take into account that in the period after the forecast, your company will continue to operate, which means that future prospects will determine a wide variety of options - from explosive growth of the enterprise to bankruptcy.

It happens that calculations are carried out using Gordon model, implying stable and systematic growth in the company’s sales and profits, as well as equal volumes of capital investments and depreciation amounts.

For this situation, the following applies: formula:

P = СF (t + 1)/(I− g),

wherein CF(t+1) is the cash flow in the first year following the forecast period,

I- discount rate,

g– flow growth rate.

The Gordon model is most convenient to use when calculating the value of a company if the object of assessment is big business with a large market capacity, stable supplies, production and sales, located in favorable economic conditions.

If bankruptcy of the enterprise and further sale of property is predicted, then to calculate the cost this formula is required:

P = (1 −L av) × (A −O) −P liquid,

Where P– company value,

P liquid– costs of its liquidation (such as insurance, services of a valuation expert, taxes, employee benefits and management costs),

ABOUT– amount of liabilities,

L avg– discount provided due to the urgency of liquidation,

A– the total value of all the company’s assets after their revaluation.

The results of calculations using the current formula are also influenced by the location of the enterprise, the quality of assets, and the situation on the market as a whole.

Quickly calculate the value of a company using an express assessment

Express valuation model, which we will talk about in more detail, is based on the method of discounting cash flow for an enterprise that we already know. For convenience, we abbreviate this term as DDP method For the company. These concepts, as we remember, are used in the income approach to valuing a company.

This approach is divided into the following most common ones: assessment methods:

method of calculating economic profit;
DDP method;
real options method.

According to a lot of information, both direct and indirect, the most adequate method for determining the value of a company is the DCF method. Provided that we choose the display of behavior as a criterion for the effectiveness and expediency of the method stock market(for example, the capitalization of an enterprise according to its data).

Important, that The DDP method has several varieties, corresponding to different purposes and differing in techniques for calculating both the flow itself and the discount rate. We list the most popular varieties:

DDP for equity joint stock company(Free Cash Flow to Equity);
discounting of DP for the company (Free Cash Flow to Firm);
and another type of cash flow discounting - for capital (Capital Cash Flow);
Adjusted Present Value.

At the same time, the entire DCF method for an enterprise is based on this formula:

in which the indices i And j the serial numbers of periods (years) are indicated,

EV(Enterprise Value) – the value of the company,

D(Debt) – the cost of short-term and long-term debt,

FCFF stands for "free cash flow for the firm", excluding debt financing, remaining after taxes (or operating cash flow),

E(Equity) is the amount of the organization’s own capital,

WACC(Weighted Average Cost of Capital) is translated as “weighted average cost of capital”, which is calculated as follows:

r d– the cost of the company’s capital, which is borrowed,

t– income tax rate,

r e– the amount of equity capital.

When calculating the value of companies in Russia, it is often the following simplifications are introduced:

Weighted average cost of capital WACC can be denoted as a discount rate – r. This move does not destroy the adequacy of the formulas, since for business in Russia the calculation WACC is not always possible. Because of this, analysts resort to other calculation options.
And let's assume that the variable r is constant throughout all years. This is due to the fact that determining this indicator in Russia even for one specific year causes great problems and leads to methodological stupor. So, if we do not introduce such a simplification, then we will unreasonably complicate the entire model for express assessment of the company’s value.

As a result of all the above transformations we get the expression kind

Factors of company value within the described valuation model are any scalar quantities and vectors that affect the value of the enterprise in calculations.

Note that forecasting free cash flow for a firm for every year of an indefinite period is quite difficult and practically meaningless. This happens because the meaning of the terms with the index i too small because of the denominator, and the imperfect calculation of the numerator has almost no effect on the final result of this calculation. For this reason, the following popular practice is used an approach:

the company's value is divided into the forecast period and the post-forecast period;
in the first period, cost factors are predicted based on assumptions and plans for the further development of the enterprise;
in the post-forecast period of time, cash flows are estimated based on the hypothesis of a fixed rate of their growth throughout the entire period.

Valuing a company: common mistakes

Anyone who has encountered valuation services knows perfectly well that exactly how they calculate it significantly affects the market value of the same business being valued. The resulting amounts may vary several times. Such results often lead to serious financial damage, conflicts and even litigation.

Let's call There are several main reasons for variations in the value of the property being assessed:

Methodological errors.

Inadequate value is obtained as a result of calculation errors, as well as methodological inconsistencies in assessing the value of the company. Carefully study the experience and professional level of the appraiser.

Intentional misrepresentation of value.

Unfortunately, to this day, a certain share of the market for assessment services for various objects is occupied by “custom” examinations. That is, the real cost can be underestimated or overestimated in the expert’s opinion at the request of the customer.

Subjective opinion of an expert.

Although the assessment procedure is based on specific values and economically sound assumptions, the process remains largely subjective. So the outcome may depend on the appraiser’s personal view of the future of the market, financial capabilities and other factors of the company’s value. The decision on how to treat economic conditions must be made by the expert conducting the analysis. And he will not always be able to predict even the most seemingly predictable things. Judge for yourself: who could have predicted the development of the oil market at 66 dollars per barrel two or three years ago, and not at 25 or even the optimistic 30 dollars per unit?

Wrong statement of the problem.

The amount of the final cost that will be obtained as a result comprehensive analysis and calculations, largely depends on the correct formulation of the problem, on the accuracy and adequacy of the choice of the type of cost and on the final goals for which the entire procedure is carried out. It is not surprising that the same security can be valued at amounts that differ by 20 or even 50%. This is influenced, for example, by whether it is a minority or majority-owned company. Depending on the purpose of determining the value of the company, the calculation process is carried out differently.

Distortion of official reports.

The management of some enterprises deliberately makes a discrepancy between real and official reporting. And distortion of this factor of the company’s value inevitably leads to incorrect assessment results. This problem is even more aggravated in the case when it is necessary to make payments for a business whose share is pledged when receiving loan funds. Banks prefer to work not with management reporting, but only with official ones, which significantly changes the assessment indicators.

Legislative shortcomings.

Nowadays, experts in the field of valuation turn to three main methods of this procedure - cost, profit and comparative. Official valuation standards state that the final calculation must take into account the results obtained in all three approaches. But these methods do not always correspond to the objectives of the examination.

List of factors to pay attention to, in order to clarify their meaning and receive comments from an expert assessing the value of the company:

The cash flow forecast made based on the results of the analysis and the discount rate reflecting the costs of attracting third-party capital - with the income approach.
The cost of all intangible assets (including those that are not included in this category according to the law Russian Federation) – with a cost approach.
The adequacy of multipliers (price coefficients) and the comparability of the analogue company with which the comparison is being made – with a comparative approach.

Starting a business from scratch is quite a risky and troublesome business. In some cases, an already running business is easier and faster. But this is not as simple as it seems at first glance. The seller tries to sell his goods at a higher price, and the buyer tries to buy cheaper. A conflict of interest arises, the resolution of which requires a methodology for assessing the value of an existing business. It should be quite simple and understandable, and, at the same time, satisfy both the buyer and the seller. Unfortunately, there is no best method business valuation. There are many different approaches to solving this problem. Which method will be used by the interested parties in a particular situation depends on the parties to the transaction.

So, in this article we will present several methods that answer the question: how to value a business? Choose the one that best suits your specific situation.

Business valuation methods

1. Comparison of profitability with the base rate

The simplest and effective method estimating the value of an operating business. The method is based on comparing the current profitability of a business with the base rate of return (risk-free). This takes into account the risk premium. The method is based on the postulate: the higher the risks, the higher the return on investment should be.

The base rate of return is the opportunity to place cash with virtually zero risk of loss. The risk premium is the additional desired return to the base rate, taking into account the risks you bear when buying a business (or a share in it).

If the price asked for a business is lower than the estimated price, then it makes sense to buy. If it is higher, then you need to either bargain or refuse to participate in this project altogether.

An example of business valuation using this method:

The base rate is 7%. Risk premium – 2%.

The oil company Lukoil issued (issued) shares in the amount of 850,563,255 shares. The company's net profit for 2016 was 182,566,224,000 rubles. The market price of one share is 2880 rubles. Does it make sense to buy shares at the current price?

Required return on investment: 7% + 2% = 9%

Current yield: RUB 182,566,224,000. / 850,563,255 shares = 215 rubles. per share.

215 rub. / 2880 rub. x 100% = 7.47%

The current return on investment in Lukoil shares is lower than required. Therefore, it is not worth buying shares.

At what price does it make sense to buy shares?

215 rub. / 0.09 = 2,389 rub.

This method does not take into account the market situation, as well as the processes occurring in the company. To make the forecast accurate, it is necessary to track the situation over several years. At the same time, it allows you to relatively quickly evaluate business performance and get an idea of its expected profitability. The method can be used not only in the stock market, but also when purchasing a small enterprise or company.

2. Discounting method

It is very similar to the previous method, but forecasts of future profit are used to assess the efficiency of the business and its value. Before offering a company for sale, a business plan is drawn up, which outlines the prospects for business development and provides a calculation of the projected profitability by year.

On average, investments in an enterprise pay off in 5 years. So the forecast is made for five years. Discounting is carried out based on the postulate: tomorrow's money is worth less than what is available this moment . How much cheaper? By the amount of required profitability. If we want to recoup the investment in 5 years, then the required return on investment must be at least 20%.

An example of valuing an enterprise using the discounting method:

Initial data:

Estimated income by year:

1 – 200,000 rub.

2 – 250,000 rub.

3 – 310,000 rub.

4 – 370,000 rub.

5 – 440,000 rub.

Let's calculate the profit of the enterprise taking into account the discount:

1 – 200,000 rub. / 1 = 200,000 rub.

2 – 250,000 rub. / 1.2 = 208,333 rub.

3 – 310,000 rub. / 1.2 / 1.2 = 215,278 rub.

4 – 370,000 rub. / 1.2 / 1.2 / 1.2 = 214,120 rub.

5 – 440,000 rub. / 1.2 / 1.2 / 1.2 / 1.2 = 212,191 rub.

Enterprise value at current prices:

200,000 rub. + 208,333 rub. + 215,278 rub. + 214 120 rub. + 212,191 rub. = 1,049,922 rub.

3. Costly method

Business valuation is made on the basis of the costs that were required to create it. You write down all your expenses on a piece of paper, add them up and multiply by one and a half. One and a half is a bonus for the work you have done.

4. Method of business valuation based on asset value

The entire business consists of a collection of assets. We evaluate each asset separately, and then sum up their value. We get the value of the company. The method is suitable for evaluation simple businesses. It is quite difficult to evaluate intellectual property using this method.

In addition, it may be difficult to assess the efficiency of asset use. For example, a business contains many assets and the value of the business is high. However, the return on the assets themselves can be extremely low. Therefore, this method is suitable if you plan to sell the acquired business in parts. In the West, this is a fairly common type of business. Remember the movie "Pretty Woman".

5. Analogy method

Business valuation is based on a comparison of the company being valued with a similar company that was recently sold or incorporated. It is impossible to build a completely unique business - there are always similar companies.

6. Substitution method

The option of creating a similar business from scratch is being calculated. After which a discount is made to the received price in order to interest the buyer in purchasing an already operating business.

Conclusion

As we can see, there can be many methods for calculating the value of a particular enterprise. It all depends on the flight of your imagination and your ability to negotiate with the buyer (if you are selling a business) or the seller (if you are buying). All methods are based on a compromise of interests. If you can present your business to an investor profitably, you will sell your business at a high price, but if you cannot, you will receive very little for it or you will be left with “illiquid assets” on your hands.

There are significantly more people wanting to sell their business than there are people wanting to buy it. Therefore, in negotiations, the investor (potential buyer) always has a stronger position, and convincing him to part with money is not at all easy. If you are selling a fairly large business, you can resort to the help of professional appraisers. They will not only tell you How evaluate the business, but will also help with its sale.

Business valuation is a procedure for calculating the value of a company, business, or their share. Any manager, using a business assessment, can make the right decision about 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 complex of property. It is also an assessment of the right to profit. When assessing a business, they determine the company’s performance, its efficiency, forecast revenues, and analyze the market and competitive environment.

Valuation of a company or enterprise

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

A company assessment is necessary when:

partial or complete sale of the company;
in creating a business plan;
company restructuring;
carrying out various operations with the assets of the enterprise;
insurance operations;
obtaining a loan for business development;
revaluation of assets by the company in accounting;
asset issues;
taxation;
determining the company's creditworthiness;
determining the rent when leasing a business;
relevant court decisions;
making various management decisions.

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

Minority and majority stakes in the company are assessed. 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, assets of the company, as well as the financial flows of the enterprise are assessed;
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, cost and comparative. When is it carried out? this analysis, choose the method that gives the most clear assessment.

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

based on existing assets;
Suitable for evaluating enterprises, investment and holding companies that have just started their activities.

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

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 fundamental factor that is considered is income and profit. How more income company, the higher its value.

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

The comparative method involves analyzing and comparing the business that is being evaluated with competitive enterprises that operate in the market. Information for this method is obtained from public stock markets, previous transactions with business assets, and the takeover market.

Business benefits

For any enterprise, business valuation has the following advantages:

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

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

Business Valuation Process

The valuation of a business enterprise is carried out as follows:

analysis of the market in which the enterprise is active;
collecting the necessary information about the object being assessed;
calculation and coordination of results using business valuation methods;
reporting and interpretation of results.

Valuation of a company - determining the value of the assessed block of shares. The package can be majority, minority, controlling or blocking, depending on the number of shares. The assessment 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 price of shares. High price securities depends on high liquidity.

The valuation of shares mainly determines their value and the ability to bring profit to the owner. Indicators such as net assets, dividends, capital market help in valuation of shares.

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

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

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

When conducting an assessment, 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 company's assets and liabilities. Assets include any movable and immovable objects, equipment, financial investments, machinery, goods, cash reserves, employee qualifications, intellectual property (brands, trademarks), business reputation. Liabilities are the various debts and outstanding obligations of a business.

Several approaches are used in assessing and analyzing the value of a business, so the assessment is ultimately as accurate as possible.

For many Belarusian owners, the issue of business valuation causes difficulties. Financial analyst"Zubr Capital" Viktor Denisevich talks about the most practical valuation method and gives a formula for calculating the value of a company.

Estimating the value of a company is like playing chess. A chess player who plays white and one who plays black may evaluate the position on the board differently. Likewise, an owner and an investor are likely to have different views of the same company.

Obviously, this happens because the owner and the investor have different goals. From the owner - to sell the company or part of it for the highest possible price, from the investor - to buy a share or the entire company for the lowest possible amount.

When we're talking about When it comes to estimating a company's value, there are an almost infinite number of ways to form it. But the most practical and adequate in this matter is comparative method.

Its essence is that you form an assessment not only based on the company’s internal resources, but, first of all, based on information about the value of peer companies.

Let’s say we have a fictitious company “A”, which produces shoes in Poland. Let's look at her example to see how the company's value is assessed.

If you want to know the value of your company, then first of all you should start with a benchmark. That is, select analogue companies and analyze their cost. Of course, the availability of this information depends, first of all, on the development of the stock market and the openness of the M&A market in the region.

The first difficulty you will encounter is the almost complete lack of information about similar companies on the basis of which you can base an assessment in our country. How to solve this problem?

There are two verified sources of information:

data from public companies around the world
information on M&A transactions not only in Belarus, but also abroad

As a result, you will receive an array of data on different companies, regions, etc. Now the task is to select the correct analogue companies on the basis of which you will make your assessment. To do this you need:

1. Identify a wide sample of companies based on general criteria that characterize your company (industry, region, revenue volume, products or services).

Let's look at our company "A". Using data on public businesses, we will compile a list of companies involved in the production of footwear in Europe. Here are 11 companies that, in their main characteristics, are similar to ours.

2. The next step is to narrow down this list using niche criteria. This includes market share, level of competition, management team, growth potential, financial performance, etc.

In our example, we will adjust the sample based on financial indicators. Companies with revenues from $30 million to$ 150 million. So, we have 5 companies (highlighted in dark). Revenue data is in millions of dollars.

The next step is to choose a multiplier based on which we will evaluate our company.

Historically, there have been 3 types of multipliers:

interval(determines the value of a company based on the results of its activities and is the most common, for example EV/EBITDA)
moment(value is determined based on the company's performance at the reporting date, for example, from the statement of financial position)
industry(for each industry there are specific multipliers, for example, the number of wells for an oil producing company)

Let's say that as a result you have a sample of 5 analogue companies, and each of them has its own multiplier value. Next goal- based on the data obtained, determine the value of the multiplier for your company. To do this you need:

1. Cut off extreme and/or unrepresentative values of multiples of peer companies.

After looking at more detailed data, we found that the multiple for Fenghua SoleTech AG is not representative.

2. “Weigh” intermediate results

Having analyzed the remaining companies, we came to the conclusion that based on region, strategy, market share, financial indicators, we should use the following weights to calculate the multiplier.

As a result, we received that the multiplier for our company “A” is 6.296.

3. Make final adjustments(for example, discounts by region).

We must understand what fundamental dependencies influence the formation of the multiplier.

This dependence is expressed by a formula that, at first glance, seems terribly complex.

EV/EBITDA = f(G,Ke,MARG,T) = f(G,BETA,DUM,MARG,T)

Essentially, this formula answers the fundamental question: “What determines the value of your company?”

It depends on:

the marginality of your business, that is, net profit margin (abbreviation “MARG”)
from the country in which your company operates (indicated by the abbreviation “DUM”)
from the industry you work in (in our formula this is “BETA”)
on the tax rate that falls on your company (“T” in our formula)
the company’s growth potential in the coming years (we use it as a variable “G”)
the value of the company's equity capital (usually denoted by the symbol “Ke”)

Thus, the value of a company is influenced not only by internal factors (the amount of equity capital, profitability, etc.), but also by external ones - for example, the so-called “country risks”.

Each country poses certain risks for the investor.

In the same way, industry risk is determined, which also affects the company's valuation.

Let's calculate the adjustments for our company "A". Initially, our multiplier was determined at 6.296. Let's look at the risks: we can exclude some risks and variables, for example, country risk, because Our comparison included almost all companies from Poland.

If we assume that the profitability of our company is slightly lower than the industry average in Poland, then we need to take into account the profitability discount. In addition, company A does not have audited financial statements international standards. In this connection, we need to make a discount to our estimated multiplier.

As a result, our company will be worth 5.91 EBITDA.

Thus, using the example of company “A” as an example, we see that value depends on many variables and contexts that are important to consider.

You can see how much different estimates for the same company can differ using the “Transaction” simulator.

Overall, valuing a company is as exciting as playing chess.

Victor Denisevich

Engaged in market analysis, financial due diligence, preparation of analytical data for the board of directors, and actively participates in the development of financial models of strategies.

In 2013 received ACCA certificate (dipIFR). Currently undergoing CFA training.

Selling a business is a natural stage in a company’s development. And the success of a particular business project is directly related to the price that buyers are willing to pay for it.

Of course, the company owner is interested in the highest possible valuation of his business. In economic theory, his aspiration is denoted by the abbreviation SDP (the sellers dream price). Literally – the ultimate dream of a seller. In contrast, there is the “10-50” rule, developed by Western appraisers. In Russian practice, it also finds application: the final cost of the company is usually 10-50% lower than what was initially stated by the seller.

It is important to ensure that the difference between the seller's expectations and the buyer's readiness is minimal before putting it up for sale. There are many valuation methods, which entrepreneurs are unlikely to be able to delve into without the help of specialists. But you need to know the main ones in order to understand: a competent assessment of a company is the key to a successful sale transaction.

Assessment based on funds spent on business

At first glance, the most obvious and logical method. The price of the company is equal to the amount of costs incurred. Operating expenses are taken into account - everything that you invested in the creation, development and operation of the business until the moment of its sale. The number of staff and the volume of the wage fund are also important.

All data, of course, must be supported by reporting documentation. Therefore, this method of assessment can be applicable only to the most legal business possible, in the management of which gray schemes are completely absent or their use is insignificant. In addition, your expenses must be justified and understandable to a potential buyer. Unreasonable expenses incurred as a result of illiterate management will not add value to the business.

However, an assessment based on the summation of funds spent can generally be considered conditional and used only in conjunction with other, more objective methods. The fact is that this method does not take into account the value of intangible assets, so-called goodwill: the reputation of your business, ideas and developments. So, using only this valuation method results in an undervalued business.

Valuation based on total asset value

This method is advisable to apply to a business that involves the ownership of large material assets. For example, industrial production or real estate. For an innovative business, where the price of tangible assets is not so indicative, this method, like the previous one, is inappropriate to use: it does not take into account the cost intellectual property. Consequently, the company will be undervalued.

Moreover, the first two evaluation methods miss the influence of external and internal factors on business value. For example, market conditions or cooperation with key partners - these nuances certainly affect the value of the company, but they will not be taken into account when assessing it using the specified methods.

Assessment based on market averages or taking into account the experience of competitors.

This method involves the use of so-called industry multipliers - formulas that calculate the average business value for a particular area. For example, the average selling price for an insurance company is 120-150% annual commission. The selling price of auto repair shops consists of double the monthly profit and the market value of the equipment. An online store can be assessed according to industry coefficients, based on sales volumes for six months and the cost of licenses/permits/accesses, if required.

And if not everyone is familiar with industry multipliers, then , based on the experience of competitors, Almost any entrepreneur can. This is perhaps one of the most accessible methods for non-professional appraisers.

It is enough to study open sources that contain information about the sale of an existing business. Websites can do this specialized companies, business printed publications. From advertisements for the sale of a business, you need to make a selection that will include companies whose field of activity is similar to yours. Compare the number of advertisements for the sale of such a business with the number of applications for purchase.

The well-known rule applies here: if supply exceeds demand, liquidity decreases, and an adequate price cannot be high.

Please remember: this method will allow you to get an average cost; it does not take into account the specifics of your business. It makes sense to extrapolate the experience of other market participants to your company with a number of reservations. So, you must clearly understand what your advantage is over your competitors, what local features of doing business can affect its value. Obviously, the sale price of two similar companies located in different countries or even different regions of the same country, can differ significantly.

Assessment according to the development plan for the next five years

Paying for a company as much as it will bring in the foreseeable future is logical. To do this, the seller must provide convincing and justified financial plan for the next five years. In other words, conduct an analysis of discounted cash flows.

In fact, these are future cash receipts, the assessment of which is adapted to existing realities. The main parameters that are taken into account are planned sales growth and business profitability. Of course, forecasts must be confirmed.

The method is based on a comparison of objective market factors and expert opinions. That is, evaluate using this method can only . But you, as a company seller, must clearly understand: how much your business earns, how long it will take to pay off, and what needs to be done to achieve optimistic financial forecasts.

It is more likely that a potential buyer or investor may consider the resulting assessment controversial. Only a competent specialist in investment projects can competently answer objections here, or involve him in negotiations.

To ensure that the value of your company upon sale is adequate and mutually beneficial, you should not neglect three universal rules

1. Use immediately several techniques when determining the price of a business. Only together can they give an objective assessment of the company.