The value of the operating business is an objective indicator of the functioning of the enterprise and reflects the current value of the benefits in the future from its functioning. This allows you to calculate the most likely price at which it can be sold on the open market. The question of how to assess the value of a business is practical in nature and is of great importance for every entrepreneur at various stages of the functioning of the company.

How the business is evaluated

First of all, you need to determine the main goal that the process of calculating the value of the business has. Two options are possible here.

First option- the cost is necessary for the implementation of certain legal actions. That is, you need to obtain an official opinion in the form of an "Appraisal Report", which will be prepared by an independent appraiser licensed to carry out this procedure.

Second option- an assessment is carried out to determine how much the real value of your business is. For this, you no longer need the "Assessment Report", in accordance with the requirements of Law No. 135-FZ.

These options have a fundamental difference not in the quality of the work that the evaluator performs, but in terms of the results obtained. Appraisal activity is a licensed activity. For this reason, certain requirements are imposed on it by the current legislation. Fulfillment of these requirements in the process of drawing up the Assessment Report, as a rule, causes an increase in the cost of the specialist's work.

If the results of the work are drawn up not in the form of an official Report, but as a Conclusion, in the course of negotiations, a detailed development and approval of a clearly formulated assignment for assessment takes place. According to this assignment, the appraisers will perform only the procedures you specified that are required to resolve certain issues.

Business valuation is a procedure in which it is required to calculate the value of a business as a property complex that provides its owner with a profit.

During the assessment, the value of all assets of the company is taken into account: machinery, real estate, equipment, financial investments, warehouse stocks, intangible assets. It is also necessary to take into account the past and future income, possible prospects for the further development of the company, the competitive environment and the state of the market as a whole. On the basis of a comprehensive analysis, the company is compared with similar companies. After that, information about the real value of the business is already formed.

Methodology

Three methods are used to calculate the value of an enterprise: costly, profitable and comparative. In practice, there are different situations, and each class of situations uses its own recommended methods and approaches.

For an adequate choice of the method, it is necessary to classify the situations in advance, determining the type of transaction, the specifics of the moment at which the assessment is carried out, and so on.

Certain types of enterprise are most often evaluated on the basis of commercial potential. For example, for a hotel, guests are a source of income. This source is then compared with the cost of operating expenses to determine the profitability of the business. This approach is called profitable... This method is based on discounting the profit earned from the lease of the property. The valuation results under this method include both the value of the land and the value of the building.

If a business is not bought or sold, a developed business market in this direction does not exist, for example, a hospital or a government building is being considered, then assessment can be carried out on a cost basis, that is, it will take into account the cost of building the building, taking into account depreciation and depreciation cost.

If there is a market for a business that is similar to the one being assessed, market or comparative method can be used to determine the market price of the enterprise... This method is based on a selection of comparable items that have already been sold on the market.

Ideally, all three methods used should yield the same amount of value. But in practice, markets are imperfect, manufacturers may be inefficient, and users may have imperfect information.

These approaches involve the use of different methods estimates.

The income approach includes:

• a method of discounting cash flow, focused on the assessment of an existing business, which will continue to function. It is more often used to evaluate young companies that have a promising product, but have not yet managed to earn enough income for capitalization.
• the capitalization method is used for those enterprises that, during capitalization, have accumulated assets in previous periods.

The cost approach includes:

• method of residual value;
• the method of net assets, applicable in cases where the investor plans to significantly reduce the volume of issue or to close the enterprise altogether.

The comparative approach includes:

• method of industry coefficients, focused on the assessment of operating companies, which will continue to function in post-reporting periods.
• method of transactions, applicable in cases where it is planned to reduce the volume of output or close the enterprise.
• capital market method, also focused on the operating enterprise.

Comparative approach methods are applicable only when choosing a similar company, which must be of the same type as the company being valued. Below we will briefly review the use of the main methods of calculating the value of a business.

Brief instruction

To calculate the value of your case in the forecast period, you need to use the discounted cash flow method. The discount rate is used to bring future income to present value.

Then, according to the forecast, the value of the business is calculated using the following formula:

P = CFt / (1 + I) ^ t,
where I- discount rate, CFt denotes cash flow, and t Is the number of the period for which the estimate is made.

At the same time, it is important to understand that in the post-forecast period your enterprise will continue to function. Depending on the further prospects business development, various options are possible from complete bankruptcy to rapid growth. For the calculations, the Gordon model can be used, which assumes stable growth rates of profits and sales and equality of depreciation and capital investments.

In this case, the following formula is used:
P = СF (t + 1) / (I-g),
where CF (t + 1) reflects the cash flow for the first year after the forecast period, g- the rate of growth of the flow, I- discount rate.

This model is most appropriate when calculating indicators for a business with a significant sales market capacity, stable supplies of materials and raw materials, as well as with free access to financial resources and a generally favorable market situation.

If the bankruptcy of the enterprise and the further sale of property are predicted, then, to calculate the value of a business, you need to use the following formula:
P = (1-Lav) x (A-O) - Plikv,
where P liquor- expenses for the liquidation of the enterprise, L Wed- discount for urgent liquidation, O- the amount of liabilities, A- the value of the company's assets, taking into account the revaluation.

Costs include insurance, tax, appraisal fees, administrative expenses, and staff benefits. The value of the liquidation value also depends on the location of the company, the quality of assets, the general market situation and other factors.

In the course of assessing domestic enterprises, the date of the assessment is of great importance. Especially great importance the settlement is tied to the date in a market oversaturated with property in a pre-bankruptcy state, experiencing a shortage of investment resources.

The Russian economy is characterized by an excess of asset supply over demand. This imbalance affects the value of the property offered for sale. The price of property in a balanced market will not match the value in a depression. But investors and business owners will be primarily interested in the real value in a particular market under certain conditions. And buyers are focused on reducing the likelihood of loss Money so they require guarantees. When assessing the value of a business, it is required to take into account all risk factors, including bankruptcy and inflation.

In conditions of inflation, at first glance, it is best to use the discounted cash flow method for calculations. This is only true if inflation rates are predictable. However, it is difficult to predict the flow of income in the context of instability for several years ahead.

Estimating the fair value of a stock or its intrinsic value is not an easy task, but it is useful for any investor to know how to do this in order to determine the appropriateness of the investment. Financial multiples such as Debt / Equity, P / E and others make it possible to estimate the total value of shares in comparison with other companies on the market.

But what if you need to determine the absolute value of the company? Financial modeling will help you to solve this problem, and, in particular, the popular Discounted Cash Flow (DCF) model.

Be warned: this article can take a long time to read and comprehend. If you now have only 2-3 minutes of free time, then this will not be enough. In this case, just transfer the link to your favorites and read the material later.

Free Cash Flow (FCF) is used to calculate economic efficiency investments, therefore, in the decision-making process, investors and lenders focus on this indicator. The amount of free cash flow determines how much dividend payments will be received by the holders of securities, whether the company will be able to timely execute debentures channel money to buy back shares.

The company may have positive net income, but negative cash flow, which undermines the efficiency of the business, that is, in fact, the company does not make money. Thus, FCF is often more useful and informative than the company's net income.

The DCF model just helps to estimate the current value of a project, company or asset based on the principle that this value is based on the ability to generate cash flows. To do this, the cash flow is discounted, that is, the size of future cash flows is brought to their fair value in the present using a discount rate, which is nothing more than the required profitability or the price of capital.

It is worth noting that the assessment can be made both in terms of the value of the entire company, taking into account both equity and borrowed capital, and taking into account the value only equity capital... In the first case, the firm's cash flow (FCFF) is used, and in the second, the cash flow to equity (FCFE). In financial modeling, in particular in the DCF model, FCFF is most often used, namely UFCF (Unlevered Free Cash Flow) or the company's free cash flow before deducting financial liabilities.

In this regard, we will take the indicator WACC (Weighted Average Cost of Capital) Is the weighted average cost of capital. The company's WACC takes into account the cost share capital firm, and the value of its debt. We will analyze how to assess these two indicators, as well as their share in the company's capital structure, in the practical part.

It should also be borne in mind that the discount rate can change over time. However, for the purposes of our analysis, we will take a constant WACC.

To calculate the fair value of shares, we will use the two-period DCF model, which includes interim cash flows in the forecast period and cash flows in the terminal period, in which it is assumed that the company has reached constant growth rates. In the second case, it is calculated terminal value of the company (Terminal Value, TV). This indicator is very important, since it represents a significant proportion of the total value of the company being assessed, as we will see later.

So, we have covered the basic concepts associated with the DCF model. Let's move on to the practical part.

The following steps are required to obtain a DCF estimate:

1. Calculation of the present value of the company.

2. Calculation of the discount rate.

3. Forecasting FCF (UFCF) and discounting.

4. Calculation of terminal value (TV).

5. Calculation of the fair value of the enterprise (EV).

6. Calculating the fair value of a share.

7. Building a sensitivity table and checking the results.

For the analysis, we will take the Russian public company Severstal, financial statements which is presented in dollars according to IFRS.

To calculate free cash flow, you will need three reports: a profit and loss statement, a balance sheet and a cash flow statement. For the analysis, we will use a five-year time horizon.

Calculation of the present value of the company

Enterprise Value (EV) Is, in fact, the sum of the market value of capital (market capitalization), non-controlling interest (Minority interest, Non-controlling Interest) and the market value of the company's debt, minus any cash and cash equivalents.

The market capitalization of a company is calculated by multiplying the share price (Price) by the number of shares outstanding (Shares outstanding). Net Debt (Net Debt) is total debt (namely, financial debt: long-term debt, debt payable during the year, financial lease) minus cash and cash equivalents.

As a result, we got the following:

For the convenience of presentation, we will highlight the hards, that is, the data we enter, in blue, and the formulas in black. We look for data on non-controlling interests, debt and cash in the balance sheet.

Discount rate calculation

The next step is to calculate the WACC discount rate.

Let's consider the formation of elements for the WACC.

Share of equity and debt capital

Calculating your equity share is pretty straightforward. The formula looks like this: Market Cap / (Market Cap + Total Debt). According to our calculations, it turned out that the share of the share capital was 85.7%. Thus, the share of borrowed money is 100% -85.7% = 14.3%.

Share capital cost

The Capital Asset Pricing Model (CAPM) will be used to calculate the required return on equity investment.

Cost of Equity (CAPM): Rf + Beta * (Rm - Rf) + Country premium = Rf + Beta * ERP + Country premium

Let's start with a risk-free rate. As it was taken the rate on 5-year US government bonds.

Equity risk premium (ERP) can be calculated by yourself if there are expectations for the return on the Russian market. But we will take data from ERP Duff & Phelps, a leading independent financial consulting and investment banking firm that has been used by many analysts to estimate. Essentially, ERP is the risk premium received by the stock investor, not a risk-free asset. ERP is 5%.

The beta used was the industry beta for emerging capital markets Aswat Damodaran, renowned professor of finance at the Stern School Business at New York University. So the leverageless beta is 0.90.

To take into account the specifics of the analyzed company, it is worth adjusting the industry beta coefficient by the value financial leverage... For this we use Hamada's formula:

So the leverage beta is 1.02.

We calculate the cost of equity capital: Cost of Equity = 2.7% + 1.02 * 5% + 2.88% = 10.8%.

Cost of borrowed capital

There are several ways to calculate the cost of borrowed capital. The surest way is to take every loan the company has (including bonds issued) and add up the yield to maturity of each bond and the interest on the loan, weighing the shares of the total debt.

In our example, we will not delve into the structure of Severstal's debt, but will follow a simple path: take the amount of interest payments and divide it by the total debt of the company. We get that the cost of borrowed capital is Interest Expenses / Total Debt = 151/2093 = 7.2%

Then the weighted average cost of capital, that is, WACC, is 10.1%, while we take the tax rate equal to the tax payment for 2017 divided by pre-tax profit (EBT) - 23.2%.

Cash flow forecasting

The free cash flow formula is as follows:

UFCF = EBIT (Earnings before interest and taxes) -Taxes + Depreciation & Amortization - Capital Expenditures +/- Change in non-cash working capital

We will act in stages. First, we need to forecast revenue, for which there are several approaches, which broadly fall into two main categories: growth-based and driver-based.

The growth rate forecast is simpler and makes sense for a stable and more mature business. It is built on the assumption of the company's sustainable development in the future. For many DCF models this will be sufficient.

The second method involves predicting all financial indicators required to calculate free cash flow, such as price, volume, market share, number of customers, external factors and others. This method is more detailed and complex, but also more correct. Regression analysis often becomes part of this forecast to determine the relationship between underlying drivers and revenue growth.

Severstal is a mature business, so for the purposes of our analysis, we will simplify the task and choose the first method. Moreover, the second approach is individual. For each company, you need to choose its key factors of influence on financial results, so it will not work to formalize it under one standard.

Let's calculate the growth rate of revenue since 2010, gross profit margin and EBITDA. Next, we take the average over these values.

We forecast revenue based on the fact that it will change at an average rate (1.4%). By the way, according to the Reuters forecast, in 2018 and 2019 the company's revenue will decline by 1% and 2%, respectively, and only then positive growth rates are expected. Thus, our model has slightly more optimistic forecasts.

We will calculate EBITDA and gross profit based on average margins. We get the following:

In calculating FCF, we need EBIT, which is calculated as:

EBIT = EBITDA - Depreciation & Amortization

We already have an EBITDA forecast, it remains to forecast depreciation. The average depreciation / revenue ratio over the last 7 years was 5.7%, based on which we find the expected depreciation. Finally, calculate EBIT.

Tax we count on the basis of pre-tax profit: Taxes = Tax Rate * EBT = Tax Rate * (EBIT - Interest Expense). Interest expenses in the forecast period, we will take constant, at the level of 2017 ($ 151 million) - this is a simplification that is not always worth resorting to, since the debt profile of issuers is different.

We have already indicated the tax rate. Let's calculate taxes:

Capital expenditures or CapEx is found in the cash flow statement. We forecast based on the average share of revenue.

Meanwhile, Severstal has already confirmed its capex plan for 2018-2019 at more than $ 800 million and $ 700 million, respectively, which is higher than the volume of investments in recent years due to the construction of a blast furnace and coke oven battery. In 2018 and 2019, we will take CapEx equal to these values. So the FCF can be under pressure. The management is considering the possibility of paying out more than 100% of free cash flow, which will smooth out the negative from the growth of capex for shareholders.

Change in working capital(Net working capital, NWC) is calculated using the following formula:

Change NWC = Change (Inventory + Accounts Receivable + Prepaid Expenses + Other Current Assets - Accounts Payable - Accrued Expenses - Other Current Liabilities)

In other words, an increase in inventories and accounts receivable reduces cash flow, while an increase in accounts payable, on the contrary, increases.

You need to do a historical analysis of assets and liabilities. When we calculate the values ​​for working capital, we take either revenue or cost. Therefore, first we need to fix our Revenue and Cost of Goods Sold (COGS).

We calculate what percentage of revenue falls on accounts receivable (Accounts Receivable), inventories (Inventory), prepaid expenses (Prepaid expenses) and other current assets (Other current assets), since these indicators form revenue. For example, when we sell stocks, they decrease and this affects revenue.

Now let's move on to operating liabilities: Accounts Payable, Accrued Expenses, and Other current liabilities. Wherein accounts payable and we tie the accumulated liabilities to the cost price.

We forecast operating assets and liabilities based on the average figures that we obtained.

Next, we calculate the change in operating assets and operating liabilities in the historical and forecast periods. Based on this, using the formula presented above, we calculate the change in working capital.

We calculate the UFCF using the formula.

Fair value of the company

Next, we need to determine the value of the company in the forecast period, that is, to discount the received cash flows. Excel has a simple function for this: NPV. Our present value was $ 4,052.7 million.

Now let's determine the terminal value of the company, that is, its value in the post-forecast period. As we have already noted, it is a very important part of the analysis, as it accounts for more than 50% of the fair value of the enterprise. There are two main ways to assess terminal value. Either the Gordon model or the multiplier method is used. We will take the second method using EV / EBITDA (last year's EBITDA), which is 6.3x for Severstal.

We use a multiplier to the EBITDA parameter of the last year of the forecast period and discount, that is, we divide by (1 + WACC) ^ 5. The terminal value of the company was $ 8,578.5 million (more than 60% of the company's fair value).

Total, since the value of the enterprise is calculated by summing the cost in the forecast period and the terminal value, we get that our company should cost $ 12,631 million ($ 4,052.7 + $ 8,578.5).

Removing net debt and non-controlling interests, we get a fair share capital value of $ 11,566 million. Dividing by the number of shares, we get a fair share value of $ 13.8. That is, according to the constructed model, the price of Severstal securities is currently overstated by 13%.

However, we know that our value will change depending on the discount rate and EV / EBITDA multiple. It is useful to build sensitivity tables, and see how the value of the company will change depending on the decrease or increase in these parameters.

Based on these data, we see that with an increase in the multiplier and a decrease in the cost of capital, the potential drawdown becomes smaller. Still, according to our model, Severstal shares do not look attractive to buy at current levels. However, it should be borne in mind that we built a simplified model and did not take into account growth drivers, for example, growth in product prices, dividend yield significantly exceeding the market average, external factors, etc. This model is well suited for presenting the general picture according to the company's assessment.

So, let's take a look at the pros and cons of the discounted cash flow model.

The main advantages of the model are:

Gives a detailed analysis of the company

Does not require comparison with other companies in the industry

Defines the "inner" side of the business, which is associated with cash flows that are important to the investor

Flexible model, allows you to build predictive scenarios and analyze sensitivity to changes in parameters

Among the disadvantages are:

A large number of assumptions and forecasts are required on value judgments

Quite difficult to construct and estimate parameters, for example, discount rates

A high level of detail in the calculations can lead to overconfidence of the investor and potential loss of profit.

Thus, the discounted cash flow model, although quite complex and based on value judgments and forecasts, is still extremely useful for the investor. It helps to dive deeper into the business, understand various details and aspects of the company's activities, and can also give an idea of ​​the company's intrinsic value based on how much cash flow it can generate in the future, and therefore bring profit to investors.

If the question arises of where this or that investment house got its long-term target (target) for the price of any share, then the DCF model is just one of the elements of business assessment. Analysts do roughly the same work that is described in this article, but most often with even deeper analysis and assignment of different weights to individual key factors for the issuer in the framework of financial modeling.

In this material, we have only described an illustrative example of an approach to determining the fundamental value of an asset using one of the popular models. In reality, it is necessary to take into account not only the company's DCF valuation, but also a number of other corporate events, assessing the degree of their impact on the future value of securities.

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

Appraising the value of a company is like a game of chess. The chess player who plays white and the one who plays black can evaluate the position on the board differently. Likewise, the owner and the investor are likely to have different views of the same company.

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

When it comes to assessing the value of a company, there are almost endless ways to shape it. But the most practical and adequate in this matter is comparative method.

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

Let's say we have a conditional company "A", which is engaged in the production of footwear in Poland. Let's look at her example, how the valuation of the company is formed.

If you want to know the value of your company, then, first of all, it is worth starting with a benchmark. That is, to choose analogous 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 that you will encounter is the almost complete lack of information about similar companies, on the basis of which you can build 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 for different companies, regions, etc. Now the task is to choose the correct analogue companies, on the basis of which you will make your assessment. This requires:

1. Determine a wide sample of companies according to general criteria that characterize your company (industry, region, revenue, products or services).

Let's take a look at our company "A". Using data on public businesses, we will compile a list of companies that manufacture footwear in Europe. Here are 11 companies that are similar in their main characteristics 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 got 5 companies (highlighted in dark). Revenue figures are reported in US $ million.

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

Historically, there are 3 types of multipliers:

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

Suppose, as a result, you got a sample of 5 peer companies, and each of them has its own multiplier value. The next goal is, based on the data obtained, to determine the value of the multiplier for your company. This requires:

1. Cut off extreme and / or non-representative values ​​of peers.

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

2. "Weigh" intermediate results

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

As a result, we got 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 affect the formation of the multiplier.

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

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

In fact, this formula answers the fundamental question: "What does the value of your company depend on?"

It depends on:

• the marginality of your business, that is, the net profit margin (abbreviation "MARG")
• from the country in which your company operates (indicated by the abbreviation "DUM")
• from the industry in which you work (in our formula, this is "BETA")
• from the tax rate that is borne by your company ("T" - in our formula)
• the company's growth potential in the coming years (we have it as a variable "G")
• the cost of the company's equity (usually denoted by the symbol "Ke")

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

Each country poses certain risks for the investor.

Likewise, the industry risk is determined, which also affects the valuation of the company.

Let's calculate the adjustments for our company "A". Initially, our multiple was set at 6.296. Let's look at the risks: we can exclude some of the risks and variables, for example, country risk, since almost all companies from Poland were included in our comparison field.

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

As a result, our company will cost 5.91 EBITDA.

Thus, using the example of the fictitious company "A", we see that the cost depends on many variables and contexts that are important to consider.

You can see how strongly different estimates for the same company can differ on the "Deal" simulator.

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

Victor Denisevich

He is engaged in market analysis, financial due diligence, preparation of analytical data for the board of directors, and is actively involved in the development of financial strategy models.

Received ACCA (dipIFR) certificate in 2013. The CFA is currently undergoing training.

When buying and selling ready business everything happens in the same way as in the grocery market: the seller praises his product and wants to sell it at a higher price, while the buyer evaluates it critically and tries to lower the price. The conflict arises due to the fact that the cost of a ready-made business is difficult to assess "by eye". Usually, the assessment is carried out by experts who provide a justification for the value in monetary units. But you can evaluate the business yourself in order to understand whether the owner is overpricing and whether the appraiser is underestimating the value of your business.

Who and how estimates the value of a business

This is done by a third-party expert who is not related to either the seller or the buyer. The appraiser analyzes not only financial side, but also how the business is conducted, how profitable it is, how much is the company's reputation in the market, its intellectual property.

Companies evaluating a business are subject to Law No. 135-FZ “On Valuation Activities in the Russian Federation”. It says that setting the market price is necessary in a situation of fair competition. An expert must be an independent person, rely on documentary evidence and a number of principles that take into account the interests of all parties and do not infringe on their rights.

The appraiser sets a fair price that should not be affected by extraordinary circumstances. The cost is determined based on how much revenue the business can generate. The expert also takes into account the future benefits that the current business owner can receive if he does not sell it.

Business valuation methods

1. Costly

The most obvious and simplest method. A business is evaluated based on the costs of creation, development and operation. All operating costs are taken into account, including the wage bill. Calculations must be documented.

This method is not suitable when the company has intangible assets: reputation in the market, new ideas and developments. In addition, this assessment can be biased if the business owner was ineffective in managing funds. The method is used in conjunction with others.

2. Method for assessing the value of a business by assets

The entire business is a collection of assets. The owner adds up their value and gets the aggregate price of the object. This method is difficult to transfer to businesses that involve intellectual property or have a complex structure. Also, a situation may arise that assets are expensive and the profitability is low.

3. The method of discounting the estimated cash flows of income

The method relates to the valuation of a business based on the income of the enterprise. How more income can bring an object, the higher its value. At the same time, the expert takes into account the economic risks and costs that the owner will incur to create income.

The discounting method is based on the notion that the amount of money that the object brings now, by default, will be worth less in the future. The reason is inflation, market changes, force majeure. The method is suitable for objects whose cash flows change over time (for example, depending on the year or season). The main thing in this method is to correctly estimate future cash flows and calculate the discount rate.

To do this, a business plan is drawn up. It calculates the prospects for business development and the time when the investment will pay off (on average, it is 5 years). A plan of profitability is drawn up by years. The income for each year is divided by the discount rate. For example, for a business to pay back within 5 years, the rate must be at least 20%. For the entire cash flow, the discount rate is equal to the weighted average cost of capital.

The cost of the object is equal to the amount of income for all years of the expected payback, taking into account discounting.

4. Income capitalization method

Another way to assess the market value of a business is through future earnings. It is suitable for those companies that bring the same profit at equal intervals (in a stable market where there is no seasonality).

To estimate the value, the company's income is divided by the capitalization rate. The estimated or average figure for recent years is taken as the amount of income. The capitalization rate is calculated using an asset pricing model.

5. Comparative method for assessing the value of the enterprise

The cost assessment is carried out by analogy with a similar enterprise, market price which is known. A simple but dangerous method: although a business looks like one another at first glance, in reality it may turn out that its profitability is lower. To calculate the cost, the prices of the company's shares, financial and production indicators are compared, and industry coefficients are used.

conclusions

Evaluate a business before selling or buying should independent expert... It is difficult to make a true assessment without special education and understanding of the basics of investing. You can independently assess the value of the enterprise using cost and comparative methods. They will give approximate information about the cost, but cannot be used as the main methods of setting prices.

Articles

How to evaluate a ready-made business?

A few seditious thoughts

I am sure that professional appraisers will not like this article. Many of them may even want to crucify me upside down on the cross for seditious thoughts about the valuation business. The fact is that the role of this sphere, its place in the modern economy, especially in small and medium-sized businesses, are often exaggerated, redundant, and practical conclusions are controversial.

What is, by and large, the market valuation of a business? This is a determination of the value for which it can be sold and what profit it will bring in the future. Professional appraisers have several basic valuation methods at their disposal, the content of which is widely covered in the valuation literature and enshrined in valuation legislation.

In Russia, three methods are used: the "income approach", the "cost approach" and the "comparative approach". All these methods are complex and require special training, and for an ordinary entrepreneur, whose motto is "act and make money!"

Could it be that appraisers are exactly wrong with their calculations when it comes to large enterprises and multinational corporations?

Alas, not always. Otherwise, the stock market, trading in stocks and other securities would simply die or never experience the colossal fluctuations that we periodically observe. Indeed, in the stock markets, especially in countries with developed and rapidly developing economies, colossal money is spinning. Investment funds, management companies, before purchasing shares or bonds of certain companies, actually conduct a thorough assessment of the value of enterprises, fairly expecting a certain level of dividends or capital gains.
If the methods of business valuation were correct, then the movement of funds in the stock markets would be insignificant, since everyone represented quite accurately how much you can get by investing in one or another company. In fact, the stock market is very volatile and subject to significant fluctuations, sometimes contrary to the obvious logic and methods of calculating business valuation.

Take, for example, the latest stock crisis. China suffered the greatest losses - since the beginning of this year, the total index of shares of Chinese enterprises has decreased by 20 percent. At the same time, China's GDP growth in 2007 amounted to 11.4 percent, the forecast for 2008 is approximately the same. So where for short term a fifth of the Chinese potential has evaporated? It turns out that professional appraisers adjusted their forecasts so quickly, having been mistaken by trillions of dollars?

What do I care, - an ordinary entrepreneur will say, - to China's GDP, investment funds, valuation techniques and other high matters? And he will be right. No one but him will be able to better assess the potential and value of his business. Indeed, in most cases, only an entrepreneur thoroughly knows all the weak and strengths your business, as well as the limit of its development. In order to evaluate a business yourself, it is enough to know a few basic points and follow common sense.

Disadvantages of individuals

Selling a ready-made business serves as a kind of moment of truth for an entrepreneur. The point is not so much how you developed it, but the fact that by the time of sale, due to ignorance of some legal issues, its cost may turn out to be much less than you imagined. This is especially influenced by the choice of the organizational and legal form of doing business.

Many Russians, when starting their own business, register as individual entrepreneurs. Yes, there are many advantages in this form: ease of registration, lower penalties, the option of making a seal and opening a current account, etc.

But there are also drawbacks, one of which is directly related to the topic of the article - this form of entrepreneurship does not allow you to sell your business in one fell swoop as a complex of a ready-made business. It is no coincidence that all the methods of business valuation, enshrined in law, are sharpened for legal entities... After all, you act as natural person, and all contracts, property, permits, licenses, franchises, trademark rights, and so on are issued to you.

The buyer will have to re-register all this for himself, spending a lot of time and money. Naturally, all costs, including payment for speed, affect the final amount of the transaction. And it is not a fact that by renegotiating a contract with a new entrepreneur, the landlord will provide the new owner with the same conditions as you. He may just not like the personality of the buyer.

So, if you intend to sell your business, in advance, minimize the number of documents requiring re-registration.
Transfer your status as an entrepreneur to the owner of an LLC or joint stock company it is advisable when your business has reached a more or less significant scale. Then you can safely prepare to sell it in whole or in most of it.

On the contrary, when acquiring a business, remember about the possible additional costs associated with the peculiarities of its organizational and legal form - individual entrepreneurs are not sold, only their property is subject to sale, and the rights under concluded contracts are assigned.

There is one business, but the cost is three!

When you are about to sell your business, you initially have little interest in the motives of potential buyers. However, it is the motivation that can have a significant impact on the final price of the transaction, that is, on its market value. A buyer can have three main goals, but they are all related to generating income:

1. Sale of your business in parts or further resale. It is quite possible that you own real estate objects or the right to lease a land plot, which is located in a promising zone where active development of residential buildings is planned or shopping malls... Or is it a resale of a regional brand that you have developed, such as "Krupa Petrov", to some large Russian or foreign agro-industrial holding that is driving out competitors in the field.

Approximately according to this scheme, the once famous Armavir Tobacco Factory, which has now become a haven for numerous offices, was bought and then resold to one of the international tobacco concerns. In this case, the concept of residual value is applicable - the price of assets less the total amount of liabilities and costs to sell.

2. Income from the activities of the enterprise. The buyer is interested in maintaining and developing the business. Some re-profiling, reorganization or accession is possible.

In this situation, we are talking about the investment value, which takes into account the increase in profits from the expansion of the market, the use of know-how, plans for the reorganization of the prospective owner. Here you can bargain significantly, as did the shareholders of Yahoo, in the end, abandoning Microsoft's super-lucrative $ 44.6 billion offer. The guys from Yahoo apparently thought that in the future their company would cost much more.

3. The combination of the maximum indicators of the two values, liquidation and investment, results in a reasonable market value. Selling your business at this most favorable price is possible, as a rule, to professional investors specializing in the acquisition, development and further sale of a business. These can be local businessmen who do everything that makes money, and representatives of large companies.

Therefore, if you consider your business to be profitable and promising, feel free to apply with an offer to large investment companies and diversified holdings of oligarchs. Surely they do not know about your existence and, if interested, they can give a fair price, which competitors of your level cannot afford. You can also advertise on specialized message boards or business portals. Today in Russia there is a lot of money, the owners of which are looking for investment objects.

What is the investor thinking about?

Any investor, be it an investment fund or your neighbor, thinks about how quickly the investment will pay off and start generating income. By the way, this is one of the most effective, but at the same time simple and logical way of assessing the value of a business. Professional appraisers would see elements of the "income" method in it.

In the late 1990s and early 2000s, the attractive payback period was 1.5-2 years in small and medium-sized, and sometimes in large-scale business in Russia. With the growth of business value, the payback period has also increased up to 2-3 years. And in large - and up to 5. In the West, the standard is a period of 7-8 years, which is quite reasonable, given the lower cost of credit resources.

Several factors directly affect the payback period. Firstly, the total cost of the business, its scale - the more expensive the longer you have to wait. But then every month there will be a much greater return.

Secondly, the value of the loan rate - the higher it is, the faster the business should generate income. Otherwise, bank deposits will become a more attractive alternative than buying a ready-made business.

The third factor is the rise in prices for real estate, land and, accordingly, the cost of rent. Land and real estate are becoming more and more expensive, their share in costs is increasing, which leads to an increase in costs not related to business development, and therefore reduces overall profitability, lengthens the payback period.

The fourth defining moment is the turnover cycle. The shorter it is, the less is required. working capital and funds to start and, therefore, time to recapture money. It is one thing to sell newspapers and magazines, and another to do construction and repair work. Although the profitability is almost the same.

In practice, the calculation is simple. Let's say your two outlets (standard kiosks) give 120 thousand rubles. net profit per month. The kiosks are your property, but built on rented municipal land. They are not considered full-fledged real estate objects, they appear as temporary structures, and you will not be allowed to buy the land under them, but they can be withdrawn at any time for city needs. Therefore, as an asset, they do not represent an independent value. In this case, the reasonable selling price of your business, taking into account the profitability and the short period of turnover, may be equal to the amount of profit that you receive in a period of one to two years - from 1.44 million to 2.88 million rubles.

Many people adhere to the time principle. large companies... For example, the company "Tander", which owns a chain of stores retail"Magnit" adhered to the following tactics - opening a store in a new location, the company waited 4 months. If the store started to pay for itself, they left it. If not, they closed it.

For admission price, or make a business plan

Estimating the value of a business depending on the payback period is, of course, convenient and simple, but it misses several important things that could increase its price. First, how much are similar offers on the market, and how much time and money would it take for a buyer to create and develop such a business on their own? It is quite possible that personally to you, thanks to the contacts in the mayor's office or the equipment purchased on the occasion, the business has cost much cheaper and you have developed faster. Selling based only on the payback period would be illogical. Therefore, it is useful to at least roughly estimate the cost of the "admission ticket" from scratch.

Calculate how much you would have spent at the time of sale at current prices for rent, purchase of equipment, advertising, what would be the total amount of expenses until the moment of the first profits. Simply put, make up sample business plan, but already taking into account your knowledge of all the nuances. This approach is called "costly" by independent appraisers.

A business plan, even the simplest one, will help you convince a potential buyer of the prospect of buying your business. Try to incorporate all of your strongest competitive advantages into this business plan for the client. For example, the best masters in the area work in your hairdresser, for the sake of which people come to you who are ready to overpay for quality. Or that you have the best imported equipment for the production of bakery products or dumplings in the area.

A good name is worth a lot

You are probably not the only one looking to sell a business like yours. It is natural that potential buyer will compare all the available proposals, and most likely this will require the use of elements of the so-called "comparative" approach. The accuracy of the estimate depends on the quality of the data collected, since applying this approach, you need to collect reliable information about recent sales of comparable properties.
This data includes: economic characteristics, time of sale, location, terms of sale and terms of financing. For example, it is one thing to sell a business for cash, and another thing to use a loan.

The effectiveness of the comparative approach is reduced if there were few transactions or a long time has passed between them; if the market is in an abnormal state, since rapid changes in the market lead to distortion of indicators. For example, in a district or city a new head was appointed (elected), a well-known lover of property redistribution. Or, as in Sochi, they decided to host the Olympic Games.

In order not to worry too much with the comparative assessment of the business, you can resort to the analysis of franchise offers similar to your profile, which specify the requirements for the franchise buyer. The main one is the volume of investments for the business to function and develop. Simply put, a franchise seller invites you to work according to his technology, under his brand, style, etc. The franchise can be sold for almost any type of small and medium-sized business: sushi delivery, travel agencies, restaurants, stamp shops and real estate agencies, etc. Type in an Internet search engine "franchise" or "directory of franchises" and you will find hundreds of offers indicating the amount required to create a business.

At the same time, the comparative approach allows you to focus on your individual characteristics, on the intangible assets created during the work. Western economists, and now Russian economists, use such a concept as "goodwill" (goodwill).
Goodwill is essentially a collection of those elements of business or personal qualities that motivate customers to continue to use the services of a given enterprise or this entrepreneur, and which make a profit in excess of that which is the source of tangible, as well as intangible assets, subject to accurate assessment in monetary terms.

They talk about its occurrence when you make a profit higher than the average in a given business area, that is, people are predisposed to buy from you.

Goodwill also includes a favorable location, an accumulated clientele, and the authority of individual employees. This factor cannot be felt and calculated, but it is necessary to evaluate it. Indeed, the development of any business is based on good relations, that is, the goodwill of sellers and buyers. And your task is to convince the buyer of your business that you have earned goodwill, and it is not in vain that he pays an additional 10-20 percent for a promising and promoted business.

When you can't do without an appraiser

Having fired a couple of arrows in the direction of the institute of professional appraisers, for the sake of truth it is worth noting that in practice there are times when it is simply impossible to do without professional appraisers.

First, in a dispute with tax office about the market value of the object of purchase and sale in the form of real estate. For example, you bought a room for a workshop for 3 million rubles, and the tax authorities, in accordance with Article 40 of the Tax Code, having the right to control prices to determine the taxable base, they say, you, brother, underestimated the cost of the premises and did not pay extra taxes.

Here, in a dispute with the inspection, the conclusion of a professional appraiser helps, which will become an argument for setting the transaction price corresponding to the current market value. The conclusion of a professional has the status official document and can be used in an arbitration court as convincing evidence when considering cases related to determining the completeness and correctness of the calculation and payment of taxes. In addition, it is sometimes beneficial to officially revalue the property of an enterprise downward, which helps to save on property tax.

The second category of the entrepreneur's partners, in relations with whom the opinion of appraisers is useful, is banks. By issuing loans against collateral, banks are trying to understate the value of the pledged property. Determination of the real market value of the property by an independent appraiser makes it possible to establish a fair ratio between the value of the mortgaged property and the size of the loan. In case of non-repayment of the loan, the official conclusion helps to prevent disagreements between the parties to the transaction that arise when foreclosure on the pledged property.
Professional appraisers are also of great help if you use the services of insurance companies. There are several hidden points that insurers prefer to keep silent about.

Case of life. The entrepreneur insured the warehouse premises he acquired for a fairly decent amount. But when there was a fire Insurance Company offered a much lower amount to be paid than was indicated in the contract, stating that, on the basis of the current legislation, the contract is null and void in terms of the excess of the insured amount over the actual (market) value of the property. It was, of course, impossible to determine in hindsight how much the burned-out warehouse cost. At the same time, the overpaid insurance premium was not returned to the entrepreneur.

If at the time of the conclusion of the insurance contract the entrepreneur was armed with the opinion of the appraiser, there would be no problems - the examination carried out by an independent appraiser categorically does not allow the insurer to subsequently challenge the sum insured under the contract.

There are other times when professional judgment helps entrepreneurs. Among them, it should be noted the assessment of damage in the event of an insured event, as well as damage to the property of the entrepreneur or third parties. Knowing how much you really lost, you will be able to clearly substantiate your position in a disputable situation, including in a lawsuit.

D. Protasov, business consultant
Magazine " Modern entrepreneur... Individual approach to business ", No. 3, March 2008