1.When analyzing expenses using the discounted cash flow method, you should take into account:
2. The cost of the valuation object in the event that the valuation object must be alienated in a period less than the usual period of exposure of analogues is:
3.Does the size of the enterprise influence the level of risk?
4. The appraiser indicates the date of assessment of the object in the assessment report, guided by the principle:
5.The “deemed sale” method is based on the following assumptions:
6.Which method will provide more reliable data on the value of an enterprise if it has recently emerged and has significant tangible assets?
7.If the discounted cash flow method uses debt-free cash flow, then the investment analysis examines:
8.What is the capital market method based on:
9.Which of the following methods are used to calculate residual value for a going concern?
10.For a debt-free cash flow, the discount rate is calculated:
11. Is the statement true: for the case of a stable level of income for an unlimited time, the capitalization rate is equal to the discount rate?
12.When the growth rate of an enterprise is moderate and predictable, then the following is used:
13.What method can be used to determine the value of a non-controlling interest:
14.Transformation of reporting is required in the process of assessing an enterprise.
15.For cash flow for equity capital, the discount rate is calculated:
16. Is it necessary for the appraiser to analyze the financial condition of the enterprise:
17. In determining market value, market should be understood as:
18.To determine the value of a smaller share in a closed company, it is necessary to subtract the discount for insufficient liquidity from the value of the controlling stake:
19.What components does investment analysis include for calculating the cash flow model for equity?
20.What disadvantage of business valuation does the Edwards-Bell-Olson model eliminate?
21. The multiplier is the ratio between the sale price and any financial indicator:
22. Business is:
23. The discount rate is
24.Normalization of reporting is carried out with the aim of:
25.Calculation of residual value is necessary in:
1. It is known that the current assets of the enterprise are 200,000, the amount of assets is 700,000, and borrowed capital is 300,000. Determine the autonomy coefficient. Provide a solution.
2. It is known that the company’s income expected to be received in the middle of each year is 300,000 in the 1st year, 400,000 in the 2nd year, 350,000 in the 3rd year; discount rate – 8%. Determine the present value of the cash flows. Provide a solution.
3. The price of the enterprise’s equity capital is 7%, borrowed capital is 10%, the share of borrowed capital in the entire capital of the company is 50%. Determine the weighted average cost of capital. Provide a solution.
4. Determine the value of the enterprise using the income approach, if it is known that income in the first forecast year was CU 300,000, in the second – CU 550,000, in the third – CU 700,000, long-term cash flow growth rate 5%. In addition, it is known that the risk-free rate of return is 12%, the coefficient is 0.9, and the market premium is 5%.
Please indicate your solution:
5. Determine the value of the enterprise using the market approach, if it is known that the price/earnings multiplier for similar companies was 6.3; price/cash flow 10.5; price/revenue 4.3. The activities of the company being assessed are unprofitable, its revenue amounted to CU 1,200,000, cash flow was CU 200,000.
L.D. Revutsky, Ph.D., senior researcher
At the very beginning of the article, the author considers it necessary to determine the content of the concepts and general ideas within the framework of which the issue indicated in the title of the material will be considered. According to Ozhegov’s dictionary, “concept” is an idea, information about something.
First of all, let's look at the dictionary definitions of the concepts used in the article. Particular attention is paid to the concepts of “accuracy” and “reliability”.
Measurement (calculation) accuracy- characteristic of a measurement (calculation), reflecting the degree of closeness of its result to the true (actual, genuine) value of the measured (calculated) value being assessed. The definition is taken from the modern Encyclopedic Dictionary and, within the limits of common sense, adapted to the topic of the article.
Accuracy- the degree of true compliance with the standard (Ushakov’s Explanatory Dictionary).
Accuracy- one or another degree of correspondence to reality (Ozhegov’s Explanatory Dictionary).
Reliable(the result of a determination - measurement or calculation of something) - true, true, authentic, undoubted, beyond doubt, corresponding to reality, correct, etc. (Dictionaries by Efremova, Ozhegov, Ushakov, etc.).
What was unexpected for the author of this material was the vagueness, obvious uncertainty and inconsistency of the definitions of the concept “reliability” given in dictionaries. A value that is not necessarily genuine, but also one that does not have a criterion of truth (authenticity), can be reliable. No one has seen God, but many believe in his existence. Nobody knows the true value of the objects being valued and cannot know under any circumstances, but a more or less reliable assessment of the value of these objects is often in demand by business entities and third-party interests, for example, the state for various practical economic and social purposes, and one way or another it has to be determined.
The term “reliable” comes from the phrases “worthy of faith”, “sufficiently true” (“trustworthy”) for people who show interest in this or that information, but this does not mean, for example, that the reliable result of measurements or calculations is absolutely true in all circumstances. For different people, different results of different calculations of the same quantity can be considered reliable.
Parameter- a quantity characterizing some basic property of a machine, device, system or phenomenon, process, organization, object (Ozhegov’s Explanatory Dictionary).
Parameter- a quantity included in a mathematical formula and maintaining a constant value within one phenomenon or for a given particular problem…. (Explanatory Dictionary of Ushakov).
Drivers of the value of the assessed object- the components of the formula for calculating the value of the valued object, on which the value of this value depends to a greater or lesser extent.
The article, naturally, talks about value-forming parameters (indicators) and drivers of the desired value. Within one cost-forming driver of the value of an enterprise, in particular, the cost of its production and technical base, (in the formula for determining this driver) several cost-forming parameters can be used (coefficients of efficiency in the use of working time, reservations, wear and tear, scale of production), while the drivers themselves values are separate independent structural, constituent elements of its value. Examples of enterprise value drivers: financial obligations, infrastructure costs, if any; the cost of a land plot, in cases where it belongs to an enterprise as a property.
Fair(in particular, estimated value) according to dictionary definitions - an impartially established, true, justified, legal, thorough, correct, worthy of attention (approval), not a fictitious value. It is impossible not to notice that the concept of “fair” belongs to the category of obvious fuzzy, mythologized concepts and, according to the mentioned dictionary definitions, practically coincides with the also mythologized concept of “reliable”.
Fair value, in contrast to its ordered (contractual) valuation, by definition cannot be unreliable.
The definition of “fair value”, recently introduced into International Financial Reporting Standards (IFRS), differs significantly from the dictionary definitions given above. For more information about this concept and its definition, see.
The presence in the definitions of the concepts “reliable” and “fair” of such words as “true”, “genuine”, “corresponding to reality” does not reflect the real state of affairs. There should not be such words and phrases in the dictionary definitions of these concepts.
In this article under economically significant enterprises refers to powerful medium-sized, large and largest enterprises and their associations that differ in organizational form and structural composition.
Under enterprise value This refers to the estimated value of their property-land or land-property complexes. Indicators of market capitalization of enterprises, i.e. the total value of the full package of their securities (shares) is not considered in this article.
For enterprises represented in developed markets, and these are mainly micro, small and small enterprises of the same purpose, if the need arises, the market value is usually determined. For such enterprises there are many already sold and purchased objects - analogues, which makes it possible to statistically substantiate the use of comparative (market) approach methods to calculate their value.
Another thing is determining the value of economically significant enterprises, which, as a rule, are unique and not represented on the markets. The value of such enterprises (objects of piece trade transactions) cannot be determined by comparative methods. For these objects, it is forced to determine not the market value, but the fair reliable value.
Today, many appraisers in their practical work determine not the fair, but the “market” value of an enterprise not only by the cost and income approaches, but also by the comparative approach, if they manage to select at least one more or less suitable analogue of the object being valued. For some reason, they forget that a reliable assessment of the value of an enterprise using the market method can only be obtained if there is a representative sample of objects - analogues, and under normal conditions it should include not one or two, but dozens of analogues.
Based on the above considerations, we can come to the conclusion that To determine the fair value of enterprises of the scale under consideration, only the methods of the cost and income approaches can be used, and the methods of the comparative (market) approach are objectively inapplicable for solving problems of this kind.
Currently, the most widely used in the practice of assessing the value of enterprises are two methods of the cost approach (the method of net assets - the method of their replacement - revalued taking into account the corresponding inflation indices and all types of depreciation of historical value, as well as the replacement method) and two methods of the income approach (the method discounting expected future cash flows - the DCF method, and the method of direct capitalization of current actual annual net income or actual annual profit). There is no point in dwelling on the description of the methods of the cost approach: they are described in detail in numerous textbooks on estimating the value of enterprises, often incorrectly called “Value Estimation (or simply valuation) of a business,” for example, see.
The issue of the incorrectness of the title of this textbook and similar publications is discussed in the article.
I consider it necessary to briefly dwell on the methods of the income approach to assessing the value of enterprises in the country used today.
I believe that what is stated below, for well-known reasons, will not please many readers of this article - representatives of the evaluation community. However, I would like for at least someone to think about what is being done today when “determining the value” of the country’s multimillion-dollar assets, draw appropriate conclusions for themselves and think about what to do to correct the current situation.
Currently, in Russian valuation practice, only two methods are used to determine the value of enterprises using the income approach:
Method of discounting expected cash flows arising from production or service activities of enterprises;
A method of directly capitalizing the actual annual net cash income or actual annual net income of enterprises in the year in which their value is calculated.
The use of the first of these methods has become widespread and almost universal; the second is rarely used for various reasons.
Unfortunately, we have to admit that neither the first nor the second method is suitable for solving the problem that is solved with their help. In other words: using these methods it is impossible to determine the fair value of the enterprises being valued.
As for the DDP method, the question of its inapplicability for the purpose mentioned above is discussed in some detail in the article.
The following should be noted about the second method.
In the current economic situation in the country, the vast majority of enterprises do not operate at full production capacity. Typical levels of today's production load of enterprises range from 10 to 20-25%.
The actual annual cash income of such enterprises naturally corresponds to the achieved levels of their production load. Therefore, the estimated cost of the production and technical base of the assessed enterprises - the main value-forming indicator of these enterprises, calculated by the method of direct capitalization of their corresponding actual annual income or profit, turns out to be much less than their fair value corresponding to the conditions of their work at normal (full) production load. It turns out, for example, that the cost of the production and technical base of an enterprise operating at a 20% production load will be approximately 5 times less than its fair value when determining both by the method of direct capitalization of the corresponding cash income or profit. When buying and selling, merging or acquiring this enterprise, a scientifically unjustified repeated underestimation of its value, and then the price, will cause significant economic damage to the state and society, and the entire population of the country.
To ignore this circumstance and not to take into account its detrimental consequences for the country’s economy, in the opinion of the author of this article, is, to put it mildly, unacceptable, and if you call a spade a spade, it is criminal.
About 10 years ago, we proposed a normative-income (resource) method of an income approach to determining the fair value of enterprises, which is a special case of the method of direct capitalization of the estimated normative monetary income of an enterprise, but is free from the fundamental shortcomings of the basic method.
For known reasons, the proposed modernized method of the income approach to assessing the fair value of enterprises does not find understanding, recognition and practical application. Today's mass customized valuation of enterprises still cannot do without the DCF method and it (this type of valuation), as well as it, i.e. this method, adherents. To dubiously justify the existing situation, valuation specialists have come up with and are broadcasting a myth according to which the ordered value of the value of, in particular, large property can be obtained by any of the existing methods of its valuation. Actually this is not true. It is much easier to manipulate the results of cost estimates obtained using the DCF method than doing the same using other methods, i.e. It is easier to see how the underestimation or overestimation of the determined value is achieved.
Based on the above dictionary definitions of the concept of “accuracy,” it is easy to come to the irrefutable conclusion that there is no need to talk about the accuracy of the estimates of the fair value of enterprises obtained as a result of the corresponding calculations, due to the absence in nature of a base (standard) for their comparison, i.e. .e. indicators of the true (actual, present) value of such objects.
Thus, the task of determining the level (degree) of accuracy (inaccuracy) of the results of determining the value of enterprises does not and cannot have scientifically based and simply correct solutions.
There is a paradoxical fact: the calculation formula for determining the accuracy of the result of determining the fair value of enterprises is surprisingly elementary. The level (degree) of accuracy of such a result is determined by the ratio of its value established by the corresponding calculation to the true (actual, present, reference) value of this indicator. The dimension of the assessed level is fractions of a unit or percentage points. This formula is certainly simple, but the problem is that it does not allow solving the problem facing it, due to the fundamental (objective) impossibility of establishing (calculating) the value of its denominator in conditions where the numerator has been calculated in one way or another. For the same reason, it is impossible to determine the degree of inaccuracy of the result under consideration, which is the difference “1 is the indicator of the desired accuracy.”
In this situation, the question naturally arises for the leadership of the Investigative Committee of the Russian Federation, what kind of introduction of criminal liability of professional appraisers (for up to 7 years) for “inaccuracy” in assessing the value of, for example, state assets, can we talk about? Who and how will assess the inaccuracy of determining the fair value, in particular, of enterprises, knowing that the result of such an assessment in some cases will be criminal prosecution of the appraiser, whose guilt, if he did not commit an obvious, deliberate forgery, will be almost impossible to prove in court?
The question of the accuracy of interval estimates of something is in itself philosophical and most likely is beyond the scope of common sense. The legality of its production raises serious doubts.
Despite the fact that the above-mentioned problem of the accuracy of cost calculations has no solutions, the problem of the reliability (unreliability) of the results of determining the fair value of enterprises can be posed, discussed and solved one way or another.
The results of determining the fair value of enterprises can be considered reliable if appraisers must comply with a number of conditions, the main ones of which are given below:
The methods used to calculate the indicator of the reliable value of enterprises must be scientifically sound, correct, and not raise doubts among all persons interested in the results of the valuation process, including representatives of the state and society (for unique enterprises, these are methods of net assets or replacement of the cost approach and regulatory income - resource method or a refined method of direct capitalization of net income income approach to solving problems of this kind);
For each method of determining indicators of the reliable fair value of enterprises, there must be repeatedly verified, generally accepted conceptual (analytical), semi-expanded and fully expanded calculation formulas, the structural composition of which is specified in each specific case of valuation work, depending on what the enterprise being valued is;
The key principle for assessing the reliable fair value of enterprises must be subject to a unified systematic and methodological approach, which in a few words is formulated as follows: from reliable value to reliable value of the valued object ;
There should be no doubt about the quality of the initial data used to calculate the fair value of enterprises (the initial data should be collected by the appraiser himself and not wait until this data, often in a motivatedly distorted form, is sent to him by the appraisal customer);
Fortunately, and perhaps to the chagrin of the appraiser, the reliable fair value is not unambiguous, but an interval value that has boundary (reference, signal) values, depending on the chosen methods for its determination (as a rule, the cost approach method gives one boundary point of the interval , income approach method - another);
As a rule, the appraisal customer requires the appraiser to indicate not the range of spread, but an unambiguous value of the reliable fair value of the enterprise being valued (to fulfill this requirement of the appraisal customer, a convincing, simple algorithm for solving such a problem must be developed, agreed upon in the appraisal community);
Single-digit values of the reliable fair value of enterprises must necessarily be within the interval between their boundary values;
Simultaneously with the above algorithm, clear rules for rounding discrete estimates of the sought values should be proposed, taking into account the scale of their value (to billions, millions or thousands);
The professional status of the appraiser, the reputation of the appraisal company in which he works and, finally, the brand of the SROO, which includes the mentioned appraisal company, must be as high as possible.
I will be eternally grateful to those people who offer clarification, expansion, rationalization of the above series of conditions for recognizing the results of calculating the fair value of enterprises as reliable.
I will briefly dwell on the specification of individual conditions from among those listed.
In my firm conviction, solving the problems of determining the fair value of unique enterprises - giants of industry and the country's economy as a whole using the comparative (market) approach, the DCF method, the real options method and other similar methods is a 100% guarantee of obtaining unreliable results of the valuation work. At the same time, the resulting assessments will always fully meet the requirements of customers, unquestioningly satisfy their interests, regardless of whether they correspond to the interests of the state and society or contradict them.
By the way, it is appropriate here to give an additional consideration regarding the DCF method. This method allows you to determine the amount of future annual discounted cash flows of the enterprise for the entire remaining period of its operation until write-off. Taking this amount as an indicator of the reliable fair value of the enterprise cannot be called anything other than complete absurdity. One cannot help but be surprised that this absurdity is currently adhered to by almost all enterprise value appraisers both in our country and abroad. It is simply economically beneficial for them: with minimal expenditure of working time and mental effort, for a payment that suits them (sometimes dumping) for their maximally lightweight “labor”, they give the assessment customers exactly what they asked for. Common sense, integrity, morality, morality, ethics, fear of God are not present here. It is hard to believe that professional appraisers do not understand that when they use the DCF method to solve problems for which it does not work, they are behaving dishonestly. It is unforgivable that the position taken by appraisers, dictated by selfish interests, is shared by teachers of this academic discipline in universities, authors of numerous monographs, textbooks and teaching aids on the topic under consideration, experts in the quality of enterprise value assessments, and theorists of valuation activities (hereinafter referred to as OA). Here you can ask a question like, what came first: the egg or the chicken?
The era of conscious delusions cannot last indefinitely. It’s time for colleagues to think about what is being done and not give a reason to the Chairman of the Investigative Committee of the Russian Federation, Mr. A.I. Bastrykin, to seek and achieve the implementation of his fix idea on introducing criminal liability for appraisers for insufficiently convincing results of the appraisal work performed. Without abandoning a kind of methodological forgery in the assessment and, first of all, the application of the DCF method where it does not work, it will not be possible to overcome the custom assessment, which is unfair for the interests of the state and society, and the dumping payment for completed assessment work.
One is tempted to ask valuation professionals whether they would use the DCF method to estimate the cost of extremely expensive durable goods, for example, the International Space Station (ISS), which at its core is a kind of high-tech enterprise that produces new, unique scientific knowledge that has a very high price for humanity? If they didn't, then why?
Analytical formulas and algorithms for estimating the fair value of enterprises using cost approach methods should be written by those appraisers who widely use these methods in their daily valuation activities (VA).
A refined formula for solving the same problems using the normative-income method of the income approach is presented in the article. In each specific case of assessing the value of enterprises, the structure (element-by-element composition) of this formula must be clarified, depending on the specific conditions of existence of the assessed object. For example, the value of an enterprise's land plot is entered into the formula only when it belongs to the enterprise as private property, i.e. purchased from the state or another owner of this site.
Improving the quality of initial data for solving the problems of determining the fair value of enterprises will be facilitated by the development of standard lists of such data for enterprises of different specializations, taking into account the element-by-element composition of the formulas proposed for the methods of cost and income approaches used by appraisers in practice.
Based on the previous text of this article, the reader may get the impression that the boundary values of the reliable fair value of the assessed enterprises, currently determined by the corresponding methods of the cost and income approaches, are unambiguous. In reality, this, unfortunately, is not the case. Each of the boundary values of the required value has its own distribution (scatter) polygon. The configuration and width of these polygons depends on the degree of possible variability of those elements of the calculation formulas for estimating cost by different methods of different approaches that are not constants. For example, in the formula for determining the fair value of the production and technical base of the enterprise being valued - the main value-forming indicator of this kind of objects, the number of structural and personal jobs, working time funds of workplaces, the estimated specific productivity (cost of a standard hour) of the enterprise are conditionally recognized as constant values, and the coefficients of productive (effective) use of working time, reservation of the number of personal jobs, the integral level of depreciation of fixed assets and the coefficient taking into account the scale of production are undoubtedly variable (variable) values.
The question naturally arises of how to take into account and normalize the variability of these quantities. In existing standards for technological design of standard enterprises, such problems are successfully solved (see, for example,).
In cases where such standards do not exist, professional appraisers specializing in the valuation of enterprises and other distressed assets should sit down at the negotiating table and appropriately agree on control, limitation of variability, specification of discrete values of such coefficients in order to increase the level of reproducibility, convergence of calculated values the value of the appraised objects obtained by different appraisers of the same enterprise, if such facts occur.
Representatives of valuation science still have to work seriously on how to assess and take into account the risks of scattering of the boundary values of the fair value of enterprises when calculating them.
Taking into account all the above considerations regarding the accuracy (inaccuracy) and reliability (unreliability) of the results of determining the fair value of enterprises, it was concluded that in order to exclude as much as possible cases of deliberate infringement of the comprehensive and especially financial and economic interests of the state and society through a visible understatement or overestimating the estimated indicators of this value, we have repeatedly raised the question of the urgent need and expediency of organizing in the country a small Institute of State Appraisers and independent government experts on the quality of assessments of the value of enterprises and other distressed assets.
The essence of this proposal is described in more detail in the article.
State appraisers - appraisers of the highest qualifications with many years of experience in their specialty, who do not belong to miracle workers, will not be able to issue absolutely accurate estimates of the value of the assets being valued, since this cannot be done under any circumstances. The main advantage of their assessments, after approval by independent government experts, is that these assessments by all participants in market transactions, including the state and society, by prior agreement between the latter, are recognized as categorically reliable and cannot be challenged by anyone, even in arbitration courts.
Recently, the State Duma of the Russian Federation has received and is discussing an absolutely correct proposal to introduce a legal ban on foreign companies and domestic companies with foreign participation to conduct audits of state-owned companies and government bodies. It would be timely to introduce a similar ban on the same companies assessing the value of the most delicious pieces of the country's national wealth.
Ensuring the national and, in particular, economic security of Russia is a task that the state must not forget about for a minute.
Can anyone imagine that in the USA, Canada, Australia and the EU countries, auditing and valuation firms from Russia, China or India would audit and determine the value of the largest local budget-generating companies? In what we are doing today, Russia is no different from the most seedy countries in Africa, Asia and South America. The state, given what is happening in Ukraine, is high time to engage in careful control, limiting the maximum possible currently the subversive activities of the fifth and sixth columns in our country, so that later it does not have to fight with them for survival - not to the death!
In conclusion of this material, I think it is important to invite readers to pay attention to my relatively recent article entitled “The main economic and social consequences of deliberate understatement and overstatement of the fair value of enterprises.”
This article, along with the material corresponding to its title, examines the very serious issue of which underestimated or overestimated estimates of the fair value of enterprises should be classified as reliable and which should be considered unreliable.
Estimates of the fair value of enterprises that are no more than 30% lower or higher than the corresponding lower and upper limit values of this value should be considered reliable. Estimates of the value of enterprises that deviate in value by more than 30% from the mentioned boundary values of this indicator should be considered unreliable. In this way, an attempt is made to fairly correctly take into account the objective variability of the boundary values of the fair value of the enterprises being valued. Over time, it is possible to introduce adjustments to the approach proposed above, if the proposed innovations in relation to these adjustments are seriously justified and within the framework of common sense.
For clearly unreliable assessments of the value of enterprises, appraisers and experts on the quality of these assessments certainly need to be punished. The questions are how to punish guilty persons in ML and whether it is worth punishing appraisal firms, as well as the self-regulatory organization in which they are registered. It seems that such issues deserve wide discussion and adequate solutions in the evaluation community.
I will be eternally grateful to those who take the time to view this material, note its shortcomings, and make comments and suggestions based on the above considerations. Naturally, it is desirable that criticism and suggestions be constructive, pragmatic, and benefit OA in the country, without an inappropriate or unethical response to something that someone personally does not like for some reason. Unfortunately, there have already been cases of such behavior by individual ordinary and senior colleagues, and more than once.
Literature
Kurepova M.A. Fair value - what is it: a reliable estimate or the ability to manipulate reporting? - M.: // “Audit and financial analysis”, No. 4, 2011. 5 p.
Business valuation. Textbook. 2nd edition, revised and expanded. Edited by Gryaznova A.G. and Fedotova M.A. - M.: Finance and Statistics, 2009. 736 p.
Revutsky L.D. Enterprise value and the “worth” of a business. - M.: // “Moscow Appraiser”, No. 5 - 6 (72 - 73), 2011. P. 3 - 6.
Revutsky L.D. Once again about the inapplicability of the DCF method for determining the cost of income-generating goods. Publication on the Internet by email:
Revutsky L.D. Methods of income and normative-income approach to determining the market value of enterprises. Quality of assessments: myths and reality. - M.: // “Property relations in the Russian Federation”, No. 7, 2006. P. 36 - 46.
Revutsky L.D. A unified systematic and methodological approach to assessing all types of enterprise value. Article on the Internet at the following email address:
Revutsky L.D. A refined formula for determining the economically fair market value of an enterprise. - M.: // “Bulletin of Mechanical Engineering”, No. 9, 2010. P. 83 - 87.
All-Russian standards for technological design of automobile transport enterprises (ONTP-01-91) /Rosavtotrans/. - M.: Giproavtotrans, 1991.
Revutsky L.D. State approach to solving problems of assessing the fair value of enterprises. - Voronezh, // Electronic scientific and practical journal “Perspectives of Science and Education”, No. 6, 2013. P. 220 - 228.
Revutsky L.D. The main economic and social consequences of deliberate understatement and overstatement of the fair value of enterprises. - M.: // “Evaluation Issues”, No. 4, 2012. P. 43 - 49.
Keywords: accuracy, reliability, fairness, result, assessment, cost, parameter, cost driver, valuation method, cost approach, income approach, DCF method, foreign companies, ban on audit, ban on assessment, government approach, reliable cost, unreliable cost.
annotation
The article addresses a very serious issue for valuation activities: the accuracy and reliability of the results of assessing the fair value of enterprises.
Dictionary definitions of the concepts “accuracy” and “reliability” made it possible to come to the conclusion that in relation to indicators of the value of enterprises, it is not possible to judge their accuracy.
It is argued that the assessment of the fair value of non-market enterprises belongs to the range of economic problems that do not have exact, absolutely correct, unambiguous solutions.
The basic conditions are given under which the calculated estimates of the value of enterprises can be considered reliable.
Some methodological and practical steps are proposed to solve the problems of recognizing the calculated values of the value of enterprises as reliable or unreliable.
The need is noted to prohibit foreign appraisal companies and domestic appraisal firms with the participation of foreign capital from solving the problem of assessing the value of the largest objects of the country's national wealth.
Leopold Davidovich
e-mail: [email protected]
AUTONOMOUS NON-PROFIT EDUCATIONAL ORGANIZATION
HIGHER PROFESSIONAL EDUCATION
"INDUSTRIAL INSTITUTE"
Department of real estate assessment
EXAMINATION MATERIALS FOR DISCIPLINE
“BUSINESS ASSESSMENT AND FIRM VALUE MANAGEMENT”
Department of Real Estate Valuation,
Head department___________/A.A. Belan /
I APPROVED
Reviewed and approved at the meeting
Department of Real Estate Valuation,
economics and finance,
protocol No.___from “_____” __________ 201_
QUESTIONS FOR THE EXAM IN THE DISCIPLINE BUSINESS VALUATION AND FIRM VALUE MANAGEMENT
1 Business, enterprise, firm, capital as objects of assessment.
2 Features of business, enterprises, firms as objects of assessment.
3 Subjects of assessment. The need and goals of business valuation.
4 Cost. Types of value determined during assessment. Factors influencing the value of the appraised value.
5 Principles of business valuation.
6 Approaches and methods used to evaluate a business.
7 Temporary assessment of cash flows. The main functions of a monetary unit and their economic meaning.
8 Temporary assessment of monetary capital. Circulating functions of the monetary unit and their economic meaning.
9 Information system used in the assessment process. Requirements and organization of information. Internal information required for the assessment and its main sources.
10 External information required for assessment and its sources.
11 Inflationary adjustment of reporting during the assessment process. Purpose, methods of adjustment.
12 Normalization of financial statements in the assessment process. The purpose and directions of normalization of financial documentation.
13 Transformation of financial statements.
14 Calculation of relative indicators in the assessment process. Main groups of indicators.
15 The essence of the income approach to valuing an enterprise (business) using the discounted cash flow method of the income approach.
16 Cash flows. Cash flow models. Determining the duration of the forecast period.
17 Retrospective analysis and forecast of gross sales revenue. Analysis and forecast of expenses and investments.
18 Methods for calculating the amount of cash flow for each year of the forecast period.
19 Discount rates. Methods for determining the discount rate. Calculation of the present values of future cash flows during the forecast period. Making final amendments.
20 Economic content of the profit capitalization method of the income approach and the main stages of its application. Analysis of financial statements.
21 Capitalization rate and models for its calculation.
22 General characteristics of the comparative approach to business valuation and its basic provisions. Basic methods of business valuation using a comparative approach.
23 Basic principles for selecting analogue enterprises when assessing a business using the analogue company method (capital market method). Distinctive features of financial analysis in a comparative approach.
24 Characteristics and calculation of price multipliers when valuing a business using the peer company method (capital market method).
25 Estimation of the value of a business (enterprise) using the transaction method and the method of industry specifics.
26 The essence of the cost approach in business valuation. Basic methods of the cost approach. Stages of calculating the value of a business (enterprise) using the net asset value method.
27 Determination of the reasonable market value of the enterprise’s real estate using the income approach.
28 Determination of the reasonable market value of real estate using a comparative (market) approach.
29 Determination of the reasonable market value of real estate property using a cost approach.
30 Assessment of the market value of land. Essence, methods.
31 Estimation of the market value of machinery and equipment using a cost approach.
32 Assessment of the market value of machinery and equipment using a comparative (market) approach.
33 Assessment of the market value of machinery and equipment using the income approach.
34 Valuation of intangible assets and their groups. Essence, features.
35 Application of the income approach to the valuation of intangible assets.
36 Application of the cost approach in the assessment of intangible assets.
37 Assessment of the market value of financial investments: bonds, shares.
38 Valuation of inventories, deferred expenses, accounts receivable, cash.
39 Scope of application of the liquidation value method. Stages of calculating liquidation value.
40 Estimation of the value of controlling and non-controlling interests.
41 Report on business assessment of enterprises and requirements for it.
I APPROVED
Reviewed and approved at the meeting
Department of Real Estate Valuation,
economics and finance,
protocol No.___from “_____” __________ 201_
Head department___________/ A.A. Belan /
TEST TASKS FOR TERMINAL CONTROL FOR THE DISCIPLINE BUSINESS ASSESSMENT AND FIRM VALUE MANAGEMENT
1 option
1. When analyzing expenses using the DCF method, you should take into account:
a) inflation expectations for each category of costs;
b) prospects in the industry taking into account competition;
c) interdependencies and trends of past years;
d) expected increase in product prices;
2. The cost of the valuation object in the event that the valuation object must be alienated in a period less than the usual period of exposure of analogues is:
a) replacement cost;
b) liquidation value;
c) book value;
d) investment cost;
d) disposal cost.
3. Does the size of the enterprise affect the level of risk?
4. The appraiser indicates the date of assessment of the object in the assessment report, guided by the principle:
a) compliance;
b) usefulness;
c) marginal productivity;
d) changes in value.
5. The “deemed sale” method is based on the following. assumptions:
a) in the remaining period, the amounts of depreciation and capital investments are equal;
b) stable long-term growth rates must be maintained in the remaining period;
c) the owner of the enterprise does not change;
6. Which method will provide more reliable data on the value of an enterprise if it has recently emerged and has significant tangible assets?
a) liquidation value method;
c) income capitalization method.
7. If the discounted cash flow method uses debt-free cash flow, then the investment analysis examines:
a) capital investments;
b) net working capital;
c) change in the balance of long-term debt;
8. What is the capital market method based on:
a) on the assessment of minority stakes in peer companies
b) on the assessment of controlling stakes in peer companies;
c) on the company's future earnings.
9. Which of the following methods are used to calculate residual value for a going concern?
a) Gordon model;
b) the “deemed sale” method;
c) by net asset value;
10. For a debt-free cash flow, the discount rate is calculated:
a) as the weighted average cost of capital;
b) cumulative construction method;
c) using the capital asset valuation model;
11. Is the statement true: for the case of a stable level of income for an unlimited time, the capitalization rate is equal to the discount rate?
12. When the growth rate of an enterprise is moderate and predictable, then the following is used:
a) discounted cash flow method;
b) income capitalization method;
c) net asset method.
13. Using what method can you determine the value of a non-controlling interest:
a) method of transactions;
b) the net asset value method;
c) capital market method.
14. Transformation of reporting is required in the process of assessing an enterprise.
the technical and operational qualities of an object under the influence of natural factors and human activity is called:
a) physical wear and tear;
b) functional wear;
c) external (economic) wear and tear.
79. Reducing the future value of a monetary unit to the current point in time is:
a) discounting;
b) annuity;
c) comparison.
80. Does the size of the enterprise affect the level of risk:
81. Risk caused by environmental factors is called:
a) systematic;
b) unsystematic;
c) another answer.
82. For a debt-free cash flow, the discount rate is calculated:
83. When the growth rate of an enterprise is moderate and predictable, then the following is used:
a) discounted cash flow method;
b) income capitalization method;
c) net asset method.
84. What components does investment analysis include for calculations using the cash flow model for equity capital:
a) capital investments;
b) increase in own working capital;
c) demand for products.
85. Which of the following is not a cost standard:
a) market value;
b) fundamental value;
c) liquidation value.
86. Which method will provide more reliable data on the value of an enterprise if it has recently emerged and has significant tangible assets:
a) liquidation value method;
b) the net asset value method;
c) income capitalization method.
87. For a debt-free cash flow, the discount rate is calculated:
a) as the weighted average cost of capital;
b) cumulative construction method;
c) using the capital asset valuation model;
Which of the statements does not correspond to the legally established concept of the market value of the property being assessed?
a) payment for the valuation object is expressed in cash or in kind;
b. the parties to the transaction are well aware of the subject of the transaction and act in their own interests;
V. one of the parties to the transaction is not obliged to alienate the object of valuation, and the other party is not obliged to accept execution.
89. If the calculation of the value of a business is carried out for the purpose of concluding a purchase and sale transaction, then the following is calculated:
A. investment cost;
b. cost of replacement of the subject of assessment;
V. market price;
d. salvage value.
90. Consumers of the assessment results may be:
A. only the customer of the assessment;
b. any participant in assessment activities;
V. executive agencies;
d. owner of the property being assessed.
What document is the basis for business valuation?
A. license;
b. contract;
g. certificate;
d. order.
At which stage should the appraiser consider inflation rates and the company's market share?
A. determining the discount rate;
b. retrospective analysis and forecast of gross sales revenue;
V. calculation of the value in the post-forecast period;
d. choosing a cash flow model.
At what stage should the appraiser determine depreciation charges based on the current availability of assets and on their future additions and disposals?
A. cost analysis and forecast;
b. analysis and forecast of accounts payable;
V. determining the duration of the forecast period;
d. making final amendments.
94. The formula below calculates:
WACC= kd ( 1 − t)Wd+ ks ws+ kp wp
A. share of borrowed capital in the capital structure of the enterprise;
b. cost of raising equity capital (preferred shares);
V. weighted average cost of capital;
d. share of ordinary shares in the capital structure of the enterprise;
d. cost of raising equity capital (ordinary shares).
A) Gordon's model;
7. How true is the statement that it is advisable to add the value of assets that are not involved in this business to the value of the enterprise, calculated as the current value of expected income:
A) true;
8. Does the size of the enterprise affect the level of risk:
9. Which method will provide more reliable data on the value of an enterprise if it has recently emerged and has significant tangible assets:
b) the net asset value method;
10. Risk caused by environmental factors is called:
a) systematic;
11. Is transformation of reporting required in the process of assessing an enterprise?
12. Using what method can you determine the value of a minority stake:
c) capital market method.
13. To determine the value of a smaller share in a closed company, it is necessary to subtract a discount for insufficient liquidity from the value of a controlling stake:
14. The multiplier is the ratio between the sale price and any financial indicator:
15. For cash flow for equity capital, the discount rate is calculated:
d) answers b) and c) are correct;
16. The “deemed sale” method is based on the following assumptions:
a) in the remaining period, the amounts of depreciation and capital investments are equal;
b) stable long-term growth rates must be maintained in the remaining period;
c) the owner of the enterprise does not change.
d) all answers are incorrect.
17. To determine the value of a freely marketable smaller share, it is necessary to subtract a discount for the non-controlling nature from the value of the controlling interest:
18. Which of the following is not a business valuation standard:
d) investment cost;
19. The discount rate is:
b) the expected rate of return on alternative investment options.
20. Is it true that systematic risk can be diversified through quality management of the company?
b) incorrect.
Minority stake – does not allow direct participation in the management of the company
Majority stake –
Discount rate - rate of return (profitability) used in discounting taking into account the risks associated with obtaining cash flows (income).
Risk-free rate - the interest rate on investments with the least risk, i.e. the minimum income that an investor can receive on his capital by investing it in the most liquid assets.
Prize for control participation – monetary (absolute or relative) expression of the advantage associated with ownership of a controlling interest compared to ownership of a non-controlling interest.
Return rate (profitability) - the ratio of the amount of income (losses) and (or) changes in value (realized or expected) to the total amount of invested funds.
Cost-based approach - a method of assessing property based on determining the cost of creation, modification and disposal of property, taking into account all types of wear and tear.
Capital market method-based based on the use of share prices of similar companies, formed. open stock market
Stages of cost assessment within the framework of the comparative approach:
1.gathering the necessary information;
2. selection of analogues;
3. Amendments;
4. price determination
Task.
Option no.
21. The economic principle according to which the maximum value of an enterprise is determined by the lowest price at which another enterprise with equivalent utility can be purchased is called:
a) the principle of substitution;
22. Which of the following factors do not affect the value of the enterprise?
f) all factors influence the value of the enterprise.
23. Which of the following does not meet the definition of market value?
c) the sale is carried out on credit with deferred payment;
24. Which of the following factors should be considered in determining the weight to be given to each valuation method to arrive at an agreed value:
d) all of the above factors;
25. The company's equity is equal to:
c) total invested capital minus liabilities.
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