Send your good work in the knowledge base is simple. Use the form below

Students, graduate students, young scientists who use the knowledge base in their studies and work will be very grateful to you.

Similar Documents

Features of applying the income approach in determining market value enterprises. The principles underlying the income approach and their content. Stages of calculating the value of the enterprise. Analysis and forecast of expenses. Determination of the discount rate.

presentation, added 04/14/2016


Consideration of essence and role appraisal activities in economics. Valuation procedure using the income approach. Factors influencing the value of comparable analogues of the property being valued. Cost approach to valuation. Profit (income) capitalization method.

test, added 12/05/2014


Principles, advantages and disadvantages of the income approach in real estate appraisal. Theory of capitalization and capitalization coefficients, methods for calculating the capitalization rate. Estimation using the residual technique. Methods for calculating the discount rate.

abstract, added 03/17/2010


Financial and economic activity of the enterprise under study and its analysis as a basic stage preceding the business valuation. Analysis of the market value of a business using two main approaches to its valuation: costly and profitable.

thesis, added 05/13/2015


Discounting in the valuation of intangible assets. Capitalization cash flows from the use of intellectual property. Advantages and disadvantages of the income approach. Evaluation of the Winston trademark, determination of the value of this brand.

term paper, added 05/06/2014


The structure of the income approach, income capitalization methods. Economic analysis restructuring of the reconstructed real estate object: general characteristics, financial indicators, profitability; debt servicing. Determining the value of real estate.

term paper, added 06/09/2011


characteristics of positive and negative sides applying the cost approach to business valuation. Analysis of the activities of Goldman Sachs LLC, stages of calculating the value of the net assets of the business. Consideration of the features of cost approach methods.

term paper, added 12/26/2012


Real estate classification: commercial real estate, personal residential property intended to be sold as a commodity for profit by developers and dealers, investments. The essence of the income approach to real estate valuation.

control work, added 08/23/2013

Send your good work in the knowledge base is simple. Use the form below

Students, graduate students, young scientists who use the knowledge base in their studies and work will be very grateful to you.

Hosted at http://www.allbest.ru/

Course work

Estimating the value of an enterprise using an income approach

Introduction

business profitable cost

Business valuation in modern Russia given enough attention. Enterprises are sold, bought, merged with each other, some go bankrupt and go under the control of another owner.

In our country, many firms have even been created that, for a fee, assess the value of a business.

In modern literature, there are several main approaches. This is a costly approach, it takes into account the state of the object of study. The second approach is comparative, it compares analogues, and based on them the value of the business is derived. The third approach is profitable. It takes into account the net profit and risks of the enterprise.

The purpose of this work is to conduct business valuation.

The object of the study is JSC "Elecond".

Work tasks:

1. Explore theoretical basis business valuation approaches.

2. Estimate the cost of OJSC "Elecond" using the income method.

The course work includes two chapters. The first chapter presents business valuation and its role in the activities of the enterprise, the classification of the main approaches to business valuation.

The second chapter describes a brief description of OJSC "Elecond", an analysis of the main performance indicators of OJSC "Elecond", an income approach to business valuation.

1. Approaches toestimateebusiness: theoretical basis

1.1 ABOUTpricebutbusinessand her rolein the activities of the enterprise

Business valuation is the value of an enterprise as a property complex that can generate income for its owner.

Business valuation includes an in-depth financial, organizational and technological analysis of the company's activities. Past, present and forecast earnings, development prospects and competitive environment in this market.

The role of business valuation is great. Every business owner needs to know the real value of their business. This is necessary in case of selling a business, to attract investments, etc.

1.2 Classificationmain approachesto the enterprise business valuation

There are three main approaches to business valuation:

1. Profitable.

2. Costly.

3. Comparative.

Consider the income approach.

income approach based on cash flows. Cash flows are movement monetary system in the process of making settlements or payments by the enterprise and receiving the latter. Cash flows are made up of receipts (inflow) Money and payments (outflow).

Let's consider a comparative approach. It is based on a comparison of the value of its assets with similar market assets. The basis of this approach is the opinion free market, expressed in the prices of completed purchase and sale transactions of similar companies or their shares (shares).

The comparative approach is used where there is a sufficient database of sales transactions. Therefore, the price of an actually completed transaction takes into account the situation on the market as much as possible.

The cost approach is used if it is impossible to find an object - an analogue, there is no experience in the implementation of such objects or the forecast of future income is not stable.

The cost approach involves determining the value of a business based on the calculation of the costs required to create or acquire, protect, produce and sell an intellectual property object at the time of valuation.

2 . Cost estimateOJSC « Elecond"

2.1 a brief description ofOJSC « Elecond"

JSC "Elecond" is one of the leading manufacturers and suppliers of Russian market, to the CIS and Baltic countries of aluminum, niobium and tantalum capacitors.

The history of the enterprise begins with the fact that on January 22, 1963, the Council of Ministers of the USSR issued Decree No. 121 on the construction of a plant for the production of electrical capacitors in Sarapul.

In 1968, the plant began its work on the production of oxide-semiconductor capacitors. To ensure the implementation production plans and development technological process in 1974, a special design bureau was established at the enterprise, which carried out a number of works on the introduction of advanced technologies for the production of oxide-semiconductor capacitors, and also developed new types of capacitors. In addition to capacitors, since 1975 the company has been producing consumer goods and industrial and technical purposes.

On February 10, 1993 the enterprise became a joint-stock company. The shareholders include the Ministry of Property Relations of the Udmurt Republic, FPG "Ural Plants", a number of individuals and legal entities.

JSC "Elecond" was established without limitation of the period of its activity, is legal entity. Operates on the basis of the charter and legislation Russian Federation.

Legal address: 427968, Udmurt Republic, Sarapul, st. Kalinina d. 3.

The main goal of the society is to make a profit. For this, the following tasks are solved:

1. Release of high-quality products that are in demand in the market.

2. Search for new markets.

3. Stimulation of staff.

4. Creation of new jobs, etc.

At present, the enterprise operates in a crisis, but this has not affected its activities in any way. There was no reduction in staff wages, working week. This is due to the fact that the company has large government orders.

Open Joint Stock Company "Elecond" carries out the following main activities:

Development, production and sale of electronic equipment products (IET), including those using precious metals, production of products special purpose and other products for industrial and technical purposes;

Development, production and sale of military products;

Ensuring the protection of information constituting a state secret, in accordance with the tasks assigned to the company within its competence;

Production and sale of consumer goods;

Implementation of design, research, development and technological works, carrying out technical, techno-economic, legal and other examinations and consultations;

Trade, trade and intermediary, purchasing, marketing, creation of wholesale and retail trade divisions and enterprises;

Organization and holding of exhibitions, sales exhibitions, fairs, auctions, auctions, both in the Russian Federation and abroad;

Provision of services to enterprises Catering, including the organization of the work of restaurants, cafes, bars, canteens;

Conducting entertainment, variety, cultural events;

Production and processing of agricultural products;

Export-import operations and other foreign economic activity in accordance with applicable law;

Provision of services for the transmission of electrical and thermal energy;

Transportation of passengers by road;

Development of communication facilities and provision of communication services;

Non-state (private) security activities solely in the interests of own security within the framework of the security service created by society;

Other types of activities not prohibited by the legislation of the Russian Federation.

Governing bodies of the Open joint-stock company"Elecond" are:

General Meeting of Shareholders;

Board of Directors;

CEO.

The supreme governing body is the general meeting of shareholders, at which the board of directors and the general director are elected.

The Board of Directors of the Open Joint Stock Company "Elekond" carries out general management of the company's activities, with the exception of resolving issues referred to federal laws and the Charter to the competence general meeting shareholders.

Management of the current activities of the company is carried out by the executive body - the general director of the company. To competence CEO include all issues of managing the current activities of the company, with the exception of issues that fall within the competence of the general meeting of shareholders and the board of directors of the company.

The General Director is directly subordinate to several departments (the second department, the legal department and the department of feasibility studies). His deputies are directly involved in the directions: Chief Engineer, on economic issues, Chief Accountant, for production and marketing, for commercial issues, for personnel, safety and social issues, head of the quality service.

The plant personnel is divided into four categories: managers, specialists, workers, employees.

As can be seen from Table 1, the largest share in the personnel structure by category is occupied by workers. Thus, in 2013 the share of this category was more than 67%, in 2014 - more than 69%, and in 2015 - more than 68%. Thus, there is a decrease in the proportion of workers in 2015 compared to 2014.

It is also necessary to conduct a qualitative analysis of the personnel, it is presented in table 2.

Based on Table 2, the following conclusion can be drawn. The largest number of personnel falls on the age of 30 to 40 years for all analyzed periods, the smaller number is for the age of less than 20 years. In general, the structure of personnel by age did not undergo major changes during the analyzed periods.

Table 2. Qualitative analysis of the personnel of JSC "Elecond"

As for the education of personnel, as can be seen from the table, the largest number falls on personnel with secondary specialized education. Positive aspects include an increase in the number of staff from higher education, and a decrease in staff with a secondary education.

The table also shows that in terms of work experience against the background of hiring new employees, the number of people with work experience up to 5 years has increased, and according to other criteria of work experience, there has also been an increase.

2.2 Analysiskey indicatorsactivities of JSC « Elecond"

Analysis of the main economic indicators allows you to identify the dynamics of deviations in revenue, cost, track the growth rate of these indicators, since the dynamics of these indicators has a direct impact on gross profit.

Analysis of the main indicators of JSC "Elecond" is presented in Table. 3.

Table 3. Analysis of key performance indicators

The data in Table 3 show that in the reporting period of 2015 compared to the base year of 2013, the company's revenue increased by 37.9%, cost growth amounted to 35.3%, and gross profit increased by 40.2%. In addition, commercial expenses increased significantly by 68.8%, administrative - by 43.8%. Growth in profit from sales amounted to 32.7%. The amount of net profit increased by 25.4%.

Thus, the activity of the enterprise is profitable and cost-effective.

In table 4, we consider the indicators characterizing the financial condition of Elecond OJSC.

Based on Table 4, the following conclusions can be drawn. The average monthly revenue of the enterprise increased in 2015 compared to 2013 by 30,178 thousand rubles. Its growth rate was 40.3%. This fact is a positive moment in the activity of the enterprise and indicates the expansion of the scale of production.

Table 4. Analysis of the indicators of the financial condition of JSC "Elecond" for 2013-2015

In 2015, compared to 2013, the share of cash in revenue increased, which increases the company's ability to fulfill its obligations in a timely manner.

The indicator characterizing the overall solvency of the enterprise in 2015 in relation to 2013 increases. The recommended dynamics for this indicator is growth.

The debt ratio of the enterprise in 2015 is lower than in 2013. A decrease in this indicator is definitely a positive trend.

The degree of solvency for current liabilities in 2015 in relation to 2013 is reduced. Negative dynamics of the degree of solvency for current liabilities caused by an imbalance in the rate of attraction borrowed money and growth rates of business income.

The coverage ratio of current liabilities by current assets has a growth dynamics. In general, the growth of this indicator indicates an increase in the solvency of the enterprise.

Equity in circulation tends to grow, which is a positive trend.

The share of equity in current assets in 2015 compared to 2013 increased, which indicates an increase in the degree of provision of the enterprise with its own working capital.

The coefficient of financial autonomy in 2014 tended to increase, there was no dynamics in 2015 compared to 2013. This generally suggests that the financial dependence of the enterprise has not increased and not decreased.

In 2015 in relation to 2013 there is an increase in the duration of current assets. The duration of the turnover of funds in production, as well as funds in settlements, also increases.

Return on working capital in 2015 decreased compared to 2013 from 0.27 to 0.20, which is a negative trend.

Return on sales decreased from 0.21 to 0.20, a negative trend is also a negative point in financial activities enterprises.

The product profitability indicator shows that in 2013 the cost per ruble products sold accounted for 44 kopecks, in 2014 the profit per ruble of sales amounted to 42 kopecks. profits, in 2015 - 44 kopecks. arrived.

In 2015, as compared to 2013, the rate of return on equity is decreasing, which is a negative trend.

The return on permanent capital decreased from 0.28 to 0.18, which can also be attributed to negative dynamics.

In 2014-2015 in relation to 2013, the profitability of the main activity decreased from 0.27 to 0.26.

Summarizing, the following conclusion can be drawn. At this point in time, the enterprise is solvent and financially stable, however, a set of measures is needed to increase the stability, solvency, liquidity of the enterprise in order to minimize financial risks.

2.3 income approachtoappraisalkeOJSC « Elecond"

The income approach to business valuation is the most common in our time. Benefits this approach is that it takes into account the impact on the value of the enterprise of such an important factor as profitability, which compensates for the shortcomings of other approaches. Since buying a business is an investment option, profitability is the main criterion for investment attractiveness. It is impossible to convince an investor to invest in a business by simply adding up the assets of the enterprise. Therefore, the income approach is a priority in assessing the value of an enterprise, which determines the choice of this method.

One of the income approach methods is the discounting method. To use this method, it is necessary to calculate the discount rate (Table 5).

Table 5. Calculation of the discount rate

The discount factor at a rate of 17% is presented in table 6.

Table 6. Discount factor

In 2015 JSC "Elecond" opened a new production - production LED lamps. Due to this, Elecond OJSC plans to increase net profit by 30% in 1 year, by 35% - in the second year, by 37% - from 3 to 5 years.

Calculate net income for each year:

P1 \u003d 342323 * 1.3 \u003d 445020 thousand rubles.

P2 \u003d 445020 * 1.35 \u003d 600777 thousand rubles.

P3 \u003d 600777 * 1.37 \u003d 823064 thousand rubles.

P4 \u003d 823064 * 1.37 \u003d 1127598 thousand rubles.

P5 \u003d 1127598 * 1.37 \u003d 1544809 thousand rubles.

The results will be displayed in table 7.

Table 7. Calculation of business value using the income approach

As a result of the calculations, it was obtained that the cost of the enterprise JSC "Elecond" will be 527964.45 thousand rubles.

101124 * 1200/1000 \u003d 124948.8 thousand rubles.

We got that the market value will be 124948.8 thousand rubles.

It turns out that the discounted market value is higher than the value of the enterprise, if we take into account the market value of the share.

Let's calculate the cost of OAO Elecond using the net profit capitalization method (Table 8).

Table 8

Thus, the cost of OAO Elecond using the net profit capitalization method will be 27,781,831 thousand rubles.

Let's compare all three methods (Table 9).

Table 9 Comparative analysis estimates of Elecond OJSC using the income approach

As can be seen from Table 9, the calculation of the value of Elecond OJSC using the net profit capitalization method differs from the discounting method and the share value method. The high price according to the capitalization method is due to the fact that the average capitalization rate is taken into account in the calculations, and it is always lower than the actual one. The discounting method is considered the most attractive.

Conclusion

In conclusion, we draw the following conclusions.

There are three main approaches to business valuation: profitable, comparative, cost.

The object of the study was OJSC "Elecond", the main activity of which is the production of capacitors.

The calculation of the cost of JSC "Elecond" was carried out using the income approach using:

Discounting method;

According to the market value of the shares;

Method of capitalization of net profit.

As a result of calculations by the discounting method, it was obtained that the cost of the enterprise JSC "Elecond" will be 527,964.45 thousand rubles.

According to the market value of the shares, the value of the enterprise will be 124,948.8 thousand rubles.

According to the net profit capitalization method, the cost of Elecond OJSC will amount to 27,781,831 thousand rubles.

The discounting method is considered the most attractive.

Bibliography

1. Volkov I.M., Gracheva M.V. Design analysis. - M.: UNITI, 2011. - 450 p.

2. Godii A.M. Branding: Tutorial. Ed. 2nd revision and additional - M.: Iz-vo "Dashkov and K", 2013. - 424 p.

4. Morozov V.Yu. Fundamentals of Marketing: Study Guide. Ed. 5th rev. and additional - M.: Ed. "Dashkov and K", 2011. - 148 p.

5. Pivovarov K.V. Business planning. - M., Marketing Publishing and Bookshop Center, 2011. - 215 p.

6. Simionova N.E., Simionov R.Yu. Enterprise (business) valuation. Moscow: ICC "MarT", Rostov n / D: Publishing Center "MarT", 2012. - 464 p.

7. Utkin E.A., Kotlyar B.A., Rapoport B.M. Business planning. - M., EKMOS Publishing House, 2011. - 446 p.

8. Chernyak V.Z., Chernyak A.V., Dovdienko I.V. Business planning. - M., RDL Publishing House, 2012. - 238 p.

Hosted on Allbest.ru

Similar Documents

Financial and economic activity of the enterprise under study and its analysis as a basic stage preceding the business valuation. Analysis of the market value of a business using two main approaches to its valuation: costly and profitable.

thesis, added 05/13/2015


The concept, goals and principles of enterprise valuation. The essence of each of the methods for assessing the value of a business within the income, cost and comparative approaches to valuation. Report on determining the market value of 1 block of shares of CJSC "Sibur-Motors".

thesis, added 07/02/2012


Characteristics of the concept of business for evaluation purposes. Types of value, goals and principles of business valuation. Analysis of the financial and economic activities of the enterprise. Evaluation of the market value of an enterprise by costly, profitable and comparative (market) approaches.

term paper, added 02/09/2015


Valuation purposes, main types of value and methodological foundations business valuations. Assessment of the financial condition of the business, profitability indicators. Valuation of the Omsk enterprise construction industry income, cost and comparative approach.

term paper, added 03/04/2012


Types of value, goals and principles of business valuation. Analysis of the financial and economic activities of the enterprise. Evaluation of the market value of an enterprise by costly, profitable and comparative (market) approaches. The procedure for determining the market value by the appraiser.

term paper, added 10/08/2013


general characteristics theoretical aspect approaches and methods used in business valuation. The essence and features of determining technologies and methods of reasonable market value of an enterprise through three approaches: costly, profitable and market.

term paper, added 12/21/2008


Determination of the current market value of an enterprise with a certain legal form, choice of approaches to cost estimation. Methodology for determining the value of a business using costly and profitable approaches. The choice of a reasonable direction for the restructuring of the enterprise.

term paper, added 05/13/2013


Setting a task for assessing the value of an enterprise (business). Cash flow discount method. Macroeconomic environment of the object. Analysis of the financial condition of the company LLC "Energy". Determining the market value of a company using the income approach.

term paper, added 01/15/2011


Characteristic construction market Russia. Analysis of financial stability, liquidity, solvency, business activity, profitability of the enterprise. Estimating the value of the enterprise's business on the basis of cost, comparative and income approaches.

term paper, added 10/28/2014


Analysis of the financial condition of OAO AK Transneft, composition and sources of property formation. Economic result of financial and economic activities. Liquidity and solvency ratios. Estimation of the company's value using the income approach.

The task of assessing the value of a business at different stages of its development does not lose its relevance. The enterprise is a long-term asset that generates income and has a certain investment attractiveness, so the question of its value is of interest to many, from owners and management to government agencies.

The most commonly used method for estimating the value of a business is income method (income approach), because any investor invests money not just in buildings, equipment and other tangible and intangible values, but in future income that can not only recoup the invested funds, but also bring profit, thereby increasing the investor's well-being. At the same time, the volume, quality and duration of the expected future income stream play a special role when choosing an investment object. Undoubtedly, the amount of expected return is relative and is subject to a huge influence of probability, depending on the level of risk of a possible investment failure, which must also be taken into account.

Note! The underlying cost factor when using this method is the expected future income of the company, which represents certain economic benefits for the owners of the enterprise. The higher the income of the company, the more, with other equal conditions, its market value.

The income method is the best way to take into account the main goal of the enterprise - making a profit. From these positions, it is most preferable for business valuation, as it reflects the prospects for the development of the enterprise, future expectations. In addition, it takes into account the economic obsolescence of objects, and also takes into account the market aspect and inflationary trends through the discount rate.

With all the undeniable advantages, this approach is not without controversial and negative points:

• it is quite laborious;
• it is characterized by a high level of subjectivity in forecasting income;
• the proportion of probabilities and conventions is high, since various assumptions and restrictions are established;
• the influence of various risk factors on the predicted income is great;
• it is problematic to reliably determine the real income shown by an enterprise in its financial statements, and it is not excluded that losses will be deliberately reflected for various purposes, which is associated with the lack of transparency of information of domestic enterprises;
• complicated accounting of non-core and surplus assets;
• incorrect assessment of unprofitable enterprises.

It is imperative that special attention be paid to the ability to reliably determine the future revenue streams of the enterprise and the development of the company's activities at the expected pace. The accuracy of the forecast is also strongly affected by the stability of the external economic environment, which is relevant for the rather unstable Russian economic situation.

So, it is advisable to use the income approach to evaluate companies when:

• they have a positive income;
• it is possible to make a reliable forecast of income and expenses.

Calculation of the company's value using the income approach

Estimating the value of a business using an income approach begins with solving the following tasks:

1) forecast of future income of the enterprise;

2) bringing the value of the future income of the enterprise to the current moment.

The correct solution of these problems contributes to obtaining adequate end results appraisal work. Of great importance in the course of forecasting is the normalization of income, with the help of which one-time deviations are eliminated, which appear, in particular, as a result of one-time transactions, for example, when selling non-core and excess assets. To normalize income, statistical methods are used to calculate the average, weighted average medium size or an extrapolation method representing is a continuation of existing trends.

In addition, it is necessary to take into account the factor of changes in the value of money over time - the same amount of income at the moment has a higher price than in the future. The difficult question of the most acceptable timing for forecasting the company's income and expenses needs to be resolved. It is believed that in order to reflect the inherent cyclicality of industries, a reasonable forecast should cover a period of at least 5 years. When considering this issue through a mathematical and statistical prism, there is a desire to lengthen the forecast period, assuming that large quantity observations will give a more reasonable value of the company's market value. However, a proportional increase in the forecast period complicates the forecasting of income and expenses, inflation and cash flows. Some appraisers note that the forecast of income for 1–3 years will be the most reliable, especially when there is instability in the economic environment, since with an increase in forecast periods, the conditionality of estimates increases. But this opinion is true only for sustainable enterprises.

Important!In any case, when choosing a forecasting period, it is necessary to cover the period until the company's growth rate stabilizes, and in order to achieve the greatest accuracy of the final results, the forecasting period can be divided into smaller intermediate periods of time, for example, six months.

In general terms, the value of an enterprise is determined by summing the income flows from the activities of the enterprise in the forecast period, previously adjusted to the current price level, with the addition of the value of the business in the post-forecast period (terminal value).

The two most common methods for assessing the income approach - income capitalization method And discounted cash flow method. They are based on estimated discount and capitalization rates that are used to determine the present value of future earnings. Of course, within the framework of the income approach, many more varieties of methods are used, but basically all of them are based on discounting cash flows.

The purpose of the assessment itself and the intended use of its results play an important role in the choice of assessment method. Other factors also influence, for example, the type of enterprise being assessed, the stage of its development, the rate of change in income, the availability of information and the degree of its reliability, etc.

Methodcapitalizationincome(Single-Period Capitalization Method, SPCM)

The income capitalization method is based on the assumption that the market value of an enterprise is equal to the present value of future income. It is most appropriate to apply it to those companies that have already accumulated assets, have a stable and predictable amount of current income, and its growth rates are moderate and relatively constant, while Current state gives a certain idea of ​​the long-term trends of future activities. And vice versa: at the stage of active growth of the company, in the process of restructuring or at other times when there are significant fluctuations in profits or cash flows (which is typical for many enterprises), this method undesirable for use, since there is a high probability of obtaining an incorrect result of the cost estimate.

The method of capitalization of income is based on retrospective information, while for the future period, in addition to the amount of net income, other economic indicators are extrapolated, for example, the capital structure, the rate of return, the level of risk of the company.

The valuation of an enterprise using the income capitalization method is carried out as follows:

Current market value = DP (or P net) / Capitalization rate,

where DP - cash flow;

P is clean - net profit.

Note! The reliability of the valuation result depends very much on the capitalization rate, so special attention should be paid to the accuracy of its calculation.

The capitalization rate allows you to convert the values ​​​​of profit or cash flow for a specific period of time into a measure of value. As a rule, it is derived from the discount factor:

Capitalization rate =D– T r,

where D- discount rate;

T p - the growth rate of cash flow or net profit.

It is clear that the capitalization ratio is often less than the discount rate for the same company.

As can be seen from the presented formulas, depending on what value is capitalized, the expected growth rate of cash flow or net profit is taken into account. Of course, for different types of income, the capitalization rate will differ. Therefore, the primary task in the implementation of this method is to determine the indicator that will be capitalized. In this case, income can be predicted the year following the valuation date, or the average income calculated using historical data is determined. Since the net cash flow fully takes into account the operating and investment activities of the enterprise, most often it is used as the basis for capitalization.

So, the capitalization rate according to its economic essence close to the discount factor and strongly correlated with it. The discount rate is also used to bring future cash flows to the present.

Discounted cash flow method ( Discounted Cash-Flows, DCF )

The discounted cash flow method allows you to take into account the risks associated with obtaining the expected income. The use of this method will be justified when a significant change in future income is predicted, both up and down. In addition, in some situations only this methodis applicable, for example, expanding the operation of an enterprise if, at the time of the assessment, it is not operating at full production capacity, but intends to increase it in the near future;planned increase in output; business development in general; merger of enterprises; introduction of new production technologies, etc. InUnder such conditions, annual cash flows in future periods will not be uniform, which, of course, makes it impossible to calculate the company's market value using the income capitalization method.

For new businesses, discounted cash flow is also the only option to use, as the value of their assets at the time of valuation may not match their ability to generate income in the future.

Of course, it is desirable that the company being assessed has favorable development trends and a profitable business history. For companies that suffer systematic losses and have a negative growth rate, the discounted cash flow method is less suitable. Particular care must be taken when evaluating enterprises with a high probability of bankruptcy. In this case, the income approach is not applicable at all, including the income capitalization method.

The discounted cash flow method is more flexible becausecan be used to evaluate any operating enterprise usingitemized forecast of future cash flows. It is important for the management and owners of the company to understand the impact of various management decisions to its market value, that is, it can be used in the cost management process based on the resulting detailed business value model and see its susceptibility to the identified internal and external factors. This allows you to comprehend the activities of the enterprise at any stage. life cycle in future. And most importantly: this method is the most attractive for investors and meets their interests, since it is based on forecasts of future market development and inflationary processes. Although there is some difficulty in this, sincein an unstable crisis economy from predicting the flow of income for several years ahead is quite difficult.

So, the initial basis for calculating the value of a business by the methoddiscounted cash flowsis a forecast, the source of which is historical information about cash flows. The traditional formula for determining the present value of discounted future income is as follows:

Current market value = Cash flows for the periodt / (1 + D) t.

The discount rate is the interest rate required to bring future earnings to a single value of the present value of the business. For the investor, it is the required rate of return on alternative investment options with a comparable level of risk at the time of assessment.

Depending on the type of cash flow chosen (for equity or for total invested capital) used as the basis for valuation, the method for calculating the discount rate is determined. Cash flow calculation schemes forinvested and equity capital are presented in table. 12.

As you can see, the calculation of cash flow forequity differs only in that the result obtained by the algorithm for calculating the cash flow for invested capital is additionally adjusted for changes in long-term debt. Then the cash flow is discounted in accordance with the expected risks, which are reflected in the discount rate calculated in relation to a particular enterprise.

So, the cash flow discount rate for equity will be equal to the required rate of return on invested capital required by the owner,invested capital- the sum of the weighted rates of return on borrowed funds (that is, the bank's interest rate on loans) and on equity, while their specific gravity are determined by the shares of borrowed and own funds in the capital structure. Cash flow discount ratefor invested capitalcalled weighted average cost of capital, and the corresponding method of its calculation -weighted average cost of capital (WeightyAVerageCost ofCapital, WACC). This method of determining the discount rate is most commonly used.

Besides, to determine the cash flow discount rate for equity may apply the following are the most common ways:

• capital asset pricing model ( CAPM);
• modified capital asset valuation model ( MCAPM);
• cumulative construction method;
• excess profit model ( EVO) and etc.

Let's consider these methods in more detail.

Methodweighted average cost of capital ( WACC)

It is used to calculate both own and borrowed capital by constructing the ratio of their shares, it shows not the balance sheet, butmarket value of capital. The discount rate for this model is determined by the formula:

DWACC = C zk × (1 - N prib) × D zk + C pr × D priv + C oa × D about,

where C zk - the cost of borrowed capital;

N prib - income tax rate;

D zk - the share of borrowed capital in the capital structure of the company;

С pr - the cost of raising equity capital (preferred shares);

D priv - the share of preferred shares in the capital structure of the company;

C oa - the cost of raising equity capital (ordinary shares);

D about - the share of ordinary shares in the capital structure of the company.

The more the company attracts cheap borrowed funds instead of expensive equity capital, the smaller the value WACC. However, if you want to use as much cheap borrowed funds as possible, you should also remember about the corresponding decrease in the liquidity of the company's balance sheet, which will certainly lead to an increase in lending interest rates, since this situation is fraught with increased risks for banks, and the value WACC will, of course, grow. Thus, it would be appropriate to use the “golden mean” rule, optimally combining equity and borrowed funds based on their balance in terms of liquidity.

Methodestimatescapitalassets (Capital Asset Pricing Model, CAPM)

Based on the analysis of stock market information on changes in the yield of freely traded shares. In this case, when calculating the discount rate for equity, the following formula is used:

DCAPM = D b / r + β × (D r − D b/r ) + P 1 + P 2 + R,

where D b / r - risk-free rate of return;

β - special coefficient;

D r - total profitability of the market as a whole (average market portfolio of securities);

P 1 - premium for small enterprises;

P 2 - premium for the risk characteristic of an individual company;

R- country risk.

The risk-free rate is taken as the basis for assessing the various types of risk associated with investing in a company. Special beta coefficient ( β ) represents the amount of systematic risk associated with the economic and political processes taking place in the country, which is calculated on the basis of deviations in the total return of the shares of a particular company compared to the total return of the stock market as a whole. The overall market return is the average market return index, which is calculated by analysts based on a long-term study of statistical data.

CAPMquite difficult to apply in the conditions of the underdevelopment of the Russian stock market. This is due to problems in determining the beta coefficients and the market risk premium, especially for closed enterprises, whose shares are not listed on the stock exchange. In foreign practice, the risk-free rate of return, as a rule, is the rate of return on long-term government bonds or bills, since it is believed that they have a high degree of liquidity and a very low risk of insolvency (the probability of state bankruptcy is practically excluded). However, in Russia, after some historical events, government securities are not psychologically perceived as risk-free. Therefore, the average rate on long-term foreign currency deposits of the five largest Russian banks, including Sberbank of Russia, which is formed mainly under the influence of domestic market factors, can be used as a risk-free rate. As for the coefficients β , then abroad most often they use ready-made publications of these indicators in financial directories calculated by specialized firms by analyzing the statistical information of the stock market. Appraisers usually do not need to independently calculate these coefficients.

Modified capital asset valuation model ( MCAPM)

In some cases, it is better to use a modified capital asset valuation model ( MCAPM), which uses such an indicator as a risk premium, which takes into account the non-systematic risks of the enterprise being valued. Unsystematic risks (diversifiable risks)- these are risks that arise randomly in the company, which can be reduced through diversification. In contrast, systematic risk is due to the general movement of the market or its segments and is not associated with a specific security. Therefore, this indicator is more suitable for the Russian conditions for the development of the stock market with its characteristic instability:

DMCAPM = D b/r + β × (D r − D b/r ) + P risk,

where Db/r is the risk-free rate of return on Russian domestic foreign currency loans;

β - coefficient, which is a measure of market (non-diversifiable) risk and reflects the sensitivity of changes in the profitability of investments in companies in a particular industry to fluctuations in the profitability of the stock market as a whole;

D r - profitability of the market as a whole;

P risk is a risk premium that takes into account the non-systematic risks of the company being valued.

Cumulative Method

Considers different kinds risks of investment investments and involves an expert assessment of both general economic and industry-specific and specific enterprise factors that give rise to the risk of shortfall in planned income. The most important factors are the size of the company, structure finance, production and territorial diversification,quality of management, profitability, predictability of income, etc.The discount rate is determined based on the risk-free rate of return, to which is added an additional premium for the risk of investing in this company, taking into account these factors.

As you can see, the cumulative approach is somewhat similar to CAPM, since they are both based on the rate of return on risk-free securities with the addition of additional income associated with the risk of investing (it is believed that the greater the risk, the greater the return).

Olson model (Edwards - Bell - Ohlson valuation model , EVO ), or the method of excess income (profit)

Combines components of income and costly approaches, to some extent minimizing their shortcomings. The value of the company is determined by discounting the flow of excess income, that is, deviating from the industry average, and the current value of net assets. The advantage of this model is the ability to use for the calculation of available information on the value of the values ​​available at the time of valuation. A significant share in this model is occupied by real investments, and only residual profit is required to predict, that is, that part of the cash flow that really increases the value of the company. Although this model is not without some difficulties in use, it is very useful in developing an organization's development strategy related to maximizing the value of the business.

Derivation of the final company's market value

After the preliminary value of the business is determined, a number of adjustments must be made to obtain the final market value:

• on excess/lack of own working capital;
• on non-core assets of the enterprise;
• on deferred tax assets and liabilities;
• on net debt, if any.

Since the calculation of the discounted cash flow includes the required amount of own working capital associated with the revenue forecast, then if it does not match the actual value, the excess of own working capital must be added, and the disadvantage must be subtracted from the value of the preliminary cost. The same applies to non-performing assets, since only those assets that were used in the formation of cash flow participated in the calculation. This means that if there are non-core assets that have a certain value that is not included in the cash flow, but can be realized (for example, upon sale), it is necessary to increase the preliminary value of the business by the value of the value of such assets, calculated separately. If the value of the enterprise was calculated for the invested capital, then the resulting market value refers to the entire invested capital, that is, it includes, in addition to the cost of own funds, the cost of the company's long-term liabilities. This means that in order to obtain the cost of equity, it is necessary to reduce the value of the established value by the amount of long-term debt.

After making all the adjustments, the value will be obtained, which is the market value of the company's equity capital.

The business is able to generate income even after the end of the forecast period. Incomes should stabilize and reach a uniform long-term growth rate. To calculate the cost inpost-forecast period, you can use one of the following discount calculation methods:

• by salvage value;
• by net asset value;
• according to the Gordon method.

When using the Gordon model, the terminal value is defined as the ratio of the cash flow for the first year of the post-forecast period to the difference between the discount rate and the long-term growth rate of cash flow. The terminal value is then reduced tocurrent cost indicators at the same discount rate that is used to discount the cash flows of the forecast period.

As a result, the total value of the business is determined as the sum of the current values ​​of income streams in the forecast period and the value of the company in the post-forecast period.

Conclusion

In the process of assessing the value of a company, the income approach creates financial model cash flows, which can serve as a basis for making informed management decisions, optimizing costs, analyzing the possibilities of increasing design capacities and diversifying the volume of products. This model will continue to be useful after the evaluation.

To choose one or another method for calculating the market value, first of all, you need to decide on the purpose of the assessment and the planned use of its results. Then you should analyze the expected change in the company's cash flows in the near future, consider the financial condition and development prospects, as well as assess the economic environment, both global and national, including the industry. When the market value of a business needs to be known in the absence of time, or to confirm results obtained using other approaches, or when in-depth cash flow analysis is not possible or required, the capitalization method can be used to quickly obtain a relatively reliable result. In other cases, especially when the income approach is the only possible to calculate market value, the discounted cash flow method is preferred. Perhaps, in certain situations, both methods will be needed to calculate the value of a company at the same time.

And of course, do not forget that the value obtained using the income approach directly depends on the accuracy of the analyst's long-term macroeconomic and industry forecasts. However, even the use of rough forecasts in the income approach process can be useful in determining a company's estimated value.

At income approach The value of the business is determined on the basis of the future income that the owner can receive, including the proceeds from the sale of property that is not needed to generate these incomes. Such "excess" property is called surplus or non-performing assets.

The income approach is the main one for assessing the market value of existing enterprises, which, after their resale to new owners, are not planned to be closed.

The higher the income brought by the object of evaluation, the greater its market value. At the same time, the duration of the period for obtaining a possible income, the degree and type of risks that accompany the process of obtaining income are of great importance.

Usually means net income(Income Expenses).

style="center">

Measurement of income

Projected business income can be taken into account in the form of:

• accounting profit (loss)
• cash flows

Income expressed in terms of cash flows allows you to more accurately predict future income and assess the value of the enterprise. This measurement of income is called financial or investment - as opposed to accounting.

One of the main reasons for preferring the financial measurement of income is significant distortions in the accounting calculation of profits due to the ability to make accelerated and delayed depreciation of fixed assets, to take into account the cost of purchased resources in the cost of production using the LIFO and FIFO methods.

Methods for estimating the cost of the income approach

The income approach uses two methods:

• . Based on forecasting flows from this business, which are then discounted at a rate corresponding to the investor's required rate of return.
• capitalization method. The essence of the capitalization method is to determine the average annual income and the capitalization rate, on the basis of which the market value of the company is calculated.

The discounted cash flow method is used to calculate the cost at the initial (forecast) stage. At this stage, it is assumed that the income of the business being valued is unstable and may change for various reasons, for example:

• Implementation in the enterprise investment projects. In this case, there can be both a decrease in income followed by an increase due to the introduction of new production lines, and a monotonous (without a decrease) increase in income if the implementation of the investment project does not lead to a reduction in existing production.
• Revenue growth through more effective use available capacities.

The capitalization method is used to calculate the value of the business being valued in the post-forecast period, when income is constant or there is a steady increase in income at a constant rate.

The total assessment of the value of the business is obtained by adding the value in the forecast period and the value in the post-forecast period. After that, a number of adjustments are taken into account.

Finally, under the income approach, the value of the business being valued is determined as follows:

Business value =

Applying other approaches to business valuation

As well as income approach to evaluate a business, it is useful to use and. In some cases, cost or comparison approaches may be more accurate or more efficient. In addition, each of the three approaches can be used to test cost estimates obtained by other approaches.

Studying the material of the chapter will allow the student to: know

• conditions for using the income approach to business valuation;
• classification of cash flows and the specifics of their use;
• the essence of the concept of "discount rate" and the specifics of its use depending on the type of cash flow;

be able to

• predict cash flows;
• consider risks in the process of determining the current value of the business; own
• discounted cash flow method;
• cash flow capitalization methods;
• tools for substantiating the discount rate.

General principles of the income approach

The income approach allows you to determine the present value of future income that will arise from the use of the company's assets. At the same time, the duration of the period for obtaining a possible income, the degree and type of risks accompanying this process, as well as the volume of investments involved in the formation of cash flows, have the greatest influence.

The value determined by the income approach is of most interest to a potential buyer, since any investor who acquires an operating business is buying not just a set of assets, but a means of generating income. At the same time, the value of the income stream must justify the investor's expectations in terms of the rate of return on invested capital.

To determine the company's ability to generate net income in the future for its owner, the appraiser can use the following sources of information:

• - current financial reports the company being valued;
• - history of all incomes, proceeds, prices;
• - results of analysis of competitors' activities.

If we consider the work of innovation-oriented companies or the launch of new business lines, significant restrictions often apply to all categories of information sources. In this case, the current financial statements of the company will not be able to fully reflect how profitable the investment in the new line of business will be, since the size and dynamics of cash flows, as well as the level of risk, may vary significantly and relate to different periods of time. In this situation, a retrospective analysis of the dynamics of income and expenses will not be able to show the company's growth rates in the new conditions. In addition, if the assessed company produces products that have no analogues using fundamentally new technological and technical solutions, it is not always possible to determine the pricing policy based on the actions of competitors, since there may not be any analogue firms at all. Therefore, the key and practically the only source of information for evaluating an innovation-oriented company is a high-quality, deeply developed business plan for its development, containing cash flows planned quarterly for the next few years. At the same time, it should be borne in mind that the results of the assessment will be correct only if two mandatory conditions are met:

• 1) new products will be in demand and will take its place in the market;
• 2) output will invariably be accompanied by a positive cash flow.

Consider the principles of business valuation using the income approach.

Principle 1. The main criterion for evaluating a business is cash flow.

In regulatory legal documents cash flow is defined as “the time dependence of cash receipts and payments calculated for the entire billing period, i.e. balance of inflows and outflows.

The cash flow more reliably reflects the actual situation in the enterprise than the indicator of accounting profit, as it has the following advantages:

• - cash flows take into account exactly the real inflows and outflows of funds, including investments, payment of dividends on preferred shares, redemption, maintenance, as well as attraction of long-term borrowed funds. Thus, for an investor, it may be more clear to use the cash flow indicator: it reflects a number of parameters that are not involved in calculating the company's net profit;
• - cash flow does not take into account depreciation as an outflow of funds, since the money that is deducted to the depreciation fund is at the disposal of the enterprise. Thus, as part of the cash flow, depreciation is taken into account as an expense when calculating income tax, but it is not an actual outflow.

The above advantages make it possible to use the cash flow indicator as a tool for strategic planning of the company's operating and investment activities and to optimize the process of managing its value.

Depending on whether cash flows are taken into account at the beginning or at the end of the period under review, a distinction is made between prenumerando and postnumerando cash flows. In this case, cash flows are concentrated on one of the boundaries of the period under consideration: the prenumerando flow is at the beginning of the period, the postnumerando flow is at the end of the period. In investment calculations, postnumerando cash flows are most common.

In addition, depending on the sequence of the nature of cash flows, ordinary and extraordinary cash flows are distinguished. Ordinary cash flows are characterized by the fact that in the initial periods there is a negative value, which is subsequently replaced by a positive one. If negative and positive cash flows constantly alternate, there is an extraordinary cash flow.

• - cash flow from operating activities, which takes into account the proceeds from the sale of goods, payment of wages, settlements with suppliers, interest payments on debt obligations and other current expenses;
• - cash flow from investment activities, which takes into account the receipts of funds and payments associated with the sale, acquisition, as well as the modernization and reconstruction of fixed assets;
• - cash flow from the financial activities of the enterprise, which takes into account settlements with investors and creditors, as well as operations related to their own finances (issuance and sale of securities, payment of dividends, etc.).

However, according to some experts, for example, S. V. Valdaitsva, the proposed classification is reasonable when the investment activity of an enterprise is considered as separate business that does not use debt or equity financing and is maintained to earn distributable profits. According to the investment activity of an ordinary enterprise, it is most often only an investment in maintaining and increasing the competitiveness of an enterprise. Therefore, it would be more logical to speak about the complete financial plan specific investment projects of the enterprise, where, for example, both short-term and long-term investments in securities(investment portfolio) are understood only as a way of accumulating funds for the planned investment of the enterprise in real assets.

Depending on the method of accounting for borrowed funds, a distinction is made between full and debt-free cash flow - it is these types that are basic in the practice of business valuation.

The total cash flow (cash flow for equity) in composition and structure reflects the method of financing all investments made within the business, i.e. takes into account the attraction, servicing and repayment of borrowed funds.

Since the share and cost of borrowed funds in business financing are taken into account in the forecasted cash flow, the expected cash flows can be discounted at the discount rate for equity, the specifics of which will be discussed below. The total cash flow reflects the amount of cash that the owners of the company can claim after paying all obligations, including settlements with creditors. However, it is far from always possible to predict the conditions for attracting borrowed funds, especially when implementing projects with a long or indefinite period of validity, and in this case they operate with a debt-free cash flow.

Debt-free (free) cash flow does not include the movement of borrowed funds that are used to finance the business. In this case, cash flows should be discounted at a rate equal to the weighted average cost of capital of the enterprise. The amount of cash, which is the balance of the debt-free flow, is the amount that all participants in the business can claim. At the same time, situations may arise when, after repayment of obligations on loans, the owners will have nothing left. If the business valuation is carried out on the initiative of the owners, they are more interested in using full cash flows, which are more visible to them.

Depending on the method of accounting for price changes, nominal and real cash flows can be applied.

Planning nominal cash flows requires an assessment of price changes for end products issued within the framework of the business being assessed, as well as the inflation forecast, and in all markets where the resources necessary for the activity are presented.

This type of cash flow can provide even greater accuracy of investment calculations, however, only if the appraiser really knows the state of the markets well, knows how to track all the changes taking place on them and is able to predict future conditions well. Based on relevant marketing research, he must take into account the factors of the possible influence of future competitors, predict price changes, etc. This is due to the fact that an illiterate analysis of the situation when using a nominal cash flow can lead to significant errors in investment calculations.

Real cash flows- is the balance of receipts and payments in the prices of the base period associated with the sale of products and the purchase of resources. In the future, these prices may have a different meaning, as they depend on how much the initial price will change due to changes in the demand for products and the supply of resources.

When determining prices for products planned for release, a pricing policy that does not take into account inflation can be used. It may, for example, involve keeping the price level low in order to conquer its sector of the market.

Principle 2: The income approach must take into account the distribution of cash flows over time.

The procedure for discounting cash flows is associated with the need to take into account the time value of money and the trade-off between risk and return. Because from the beginning financial planning a significant time passes before the moment of receipt of income, it is necessary to take into account this important factor, due to three main reasons:

inflation (the purchasing power of money decreases over time);

• - opportunity cost (finances could be invested in another project and receive more income from it);
• - risk of non-receipt sum of money. The more the owner risks when investing his capital in the target business, the greater the profitability he wants to receive, therefore it is very important to find and choose the optimal combination of these parameters when compiling the financial part of the project.

To take into account the distribution of cash flows over time, a discounting procedure is carried out.

Discounting is the estimated reduction of future income to the current point in time. When carrying out this procedure, the appraiser must keep in mind that the first negative cash flows but again created business make a much larger negative contribution than delayed positive cash flows. Therefore, one of the most important stages of the income approach is the justification of the discount rate. According to paragraph 2.7 of the Guidelines, the discount rate is determined taking into account the alternative efficiency of capital use.

Principle 3. When planning cash flows, it is necessary to take into account and evaluate the risks of not receiving them.

One of the investment conditions taken into account in the discount rate is the level of risk. At the same time, the following dependence is observed: the higher the risks of a business, the greater the profitability it provides. Since the most popular way to reflect risks in business valuation is to include them in the discount rate, a high level of risk contributes to its growth.

In the theory of finance, there are many various classifications risks, however, in valuation practice, the most popular approach is their division into systematic and non-systematic.

Systematic risks are determined by the market environment in which the business being valued operates. They are also often referred to as external risks, among which general systematic and sectoral ones can be distinguished. The former will determine the activities of all companies operating in a given country, regardless of their industry affiliation. Such risks, in particular, include inflation, changes in exchange rates, the political climate, etc. The latter depend on the company's industry affiliation and take into account factors such as the nature of competition among resource suppliers, the needs of buyers, the specifics of the assets used (for example, special equipment). To determine the industry affiliation of the business being assessed, it is most correct to use SIC-kojx (Standard Industrial Classification) - four-digit code narrow specialization. Its first two digits correspond to the main group of the industrial classification, the second two determine the subgroup.

Non-systematic risks are internal factors affecting the operation of a particular business that this enterprise faces mainly due to inefficient management. It should be noted that when valuing a business, systematic risks are mainly taken into account, since they can be objectively assessed to some extent on the basis of available market information. Accounting for non-systematic risks is possible only through expert assessment, but they are the main object of risk management and can be significantly reduced.

The main groups of non-systematic risks, as well as measures to minimize them, are presented in Table. 2.1.

Table 2.1

The main groups of non-systematic business risks and some ways to minimize them

The list of non-systematic risks presented in Table. 2.1 is not complete in all cases. There are also risks in the field of management, compliance with the deadlines and stages of the project schedule, the risks of the closed nature of the company, the peculiarities of the work of small businesses and a number of others.

Principle 4: Active application of the best use principle.

Federal valuation standards oblige to apply the principle of the most effective use in investment calculations. The value of the appraisal object, including the company, should be determined as the maximum of those values ​​that may occur under various options for using the appraisal object. Even in the case of a stable business, it is advisable to plan investments in technology improvement, equipment upgrades, product upgrades, etc. At the same time, the choice of funding sources becomes a separate area of ​​investment planning. If you do not provide for the renewal of physically depreciating equipment, the company will begin to grow defects and increase the cost of ready-to-sale products. In any case, capitalizing on a steady or ever-decreasing income will give a very low estimate of market value.

It is obvious that the principle of the most effective use is more convenient to apply when the assessment is carried out on the basis of the investment opportunities of a particular client of the assessment. When determining the market value of a business for a potential, rather than a specific buyer, certain proposals for optimizing the business plan can significantly increase the value of the company.