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Company valuation upon acquisition. How to assess the value of a company - a ready-made algorithm. Determination of market value based on market capitalization

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

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

Business Valuation Methods

1. Comparison of yield with the base rate

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

The base rate of return is the ability to place cash with almost zero risk of losing them. The risk premium is the additional desired return on top of the base rate, taking into account the risks you bear when buying a business (or a stake in it).

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

An example of business valuation by this method:

The base rate is 7%. The risk premium is 2%.

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

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

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

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

The current return on investment in Lukoil shares is below the required one. Therefore, buying shares is not worth it.

At what price does it make sense to buy shares?

215 rub. / 0.09 \u003d 2,389 rubles.

This method does not take into account the situation on the market, as well as the processes taking place in the company. For the accuracy of the forecast, it is necessary to track the situation for several years. At the same time, it allows relatively fast evaluate business performance and get an idea of its expected profitability. The method can be used not only in the stock market, but also when buying a small business or company.

2. Discount method

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

On average, investments in a company pay off in 5 years. So the forecast is made for five years. Discounting is based on the postulate: Tomorrow's money is worth less than what is available today. How much cheaper? On the required return. If we want to recoup the investment in 5 years, then the required return on investment should be at least 20%.

An example of enterprise valuation using the discount method:

Initial data:

Estimated income by year:

1 - 200 000 rub.

2 - 250 000 rub.

3 - 310 000 rub.

4 - 370 000 rub.

5 - 440 000 rub.

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

1 - 200 000 rub. / 1 = 200 000 rub.

2 - 250 000 rub. / 1.2 \u003d 208 333 rubles.

3 - 310 000 rub. / 1.2 / 1.2 = 215 278 rubles.

4 - 370 000 rub. / 1.2 / 1.2 / 1.2 = 214 120 rubles.

5 - 440 000 rub. / 1.2 / 1.2 / 1.2 / 1.2 = 212 191 rubles.

Enterprise value at current prices:

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

3. Cost method

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

4. The method of business valuation by asset value

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

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

5. Method of analogy

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

6. Substitution method

The option of creating a similar business from scratch is being considered. After that, a discount is made to the resulting value in order to interest the buyer in buying an already operating business.

Conclusion

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

There are significantly more people willing to sell their business than those willing to buy it. Therefore, in negotiations, the investor (potential buyer) always has a stronger position, and it is not at all easy to convince him to part with the money. If you sell enough big business, you can ask for help professional appraisers. They will not only tell you how evaluate a business but also help with its sale.

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

Valuing a company is like playing chess. A chess player who plays white and one who plays black can evaluate the position on the board differently. Likewise, the owner and 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 part of it for the maximum high cost, from an 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 an almost infinite number of ways to form it. But the most practical and adequate in this matter is comparative method.

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

Let's say we have a conditional company "A", which is engaged in the production of shoes 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, you should start with a benchmark. That is, choose companies-analogues and analyze their value. Of course, the availability of this information depends, first of all, on the development stock market and openness of the M&A market in the region.

The first difficulty that you will encounter is the almost complete lack of information about peer 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 public companies around the world
information about 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 peer companies on the basis of which you will make your assessment. For this you need:

1. Identify a wide sample of companies according to the general criteria that characterize your company (industry, region, revenue, product or service).

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

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

In our example, we will adjust the sample based on financial indicators. Companies with revenue from $30 million to$ 150 million. So, we got 5 companies (highlighted in dark). Revenue figures are in $ million.

The next step is the choice of a multiplier, on the basis of which we will evaluate our company.

Historically, there have been 3 types of multipliers:

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

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

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

After reviewing more detailed data, we found that the multiple 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 by 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 determines the value of your company?”.

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 it is "BETA")
from tax rate, which falls on your company ("T" - in our formula)
the company's growth potential in the coming years (we use it as a G variable)
cost equity company (usually denoted by the symbol "Ke")

Thus, the value of the company is affected not only internal factors(the amount of equity capital, profitability, etc.), but also external - for example, the so-called "country risks".

Each country causes certain risks for the investor.

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

Let's calculate the adjustments for our company "A". Initially, our multiplier was set at 6.296. Let's look at the risks: we can exclude some of the risks and variables, for example, the country risk, because practically all companies from Poland got into the field of our comparison.

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

As a result, our company will cost 5.91 EBITDA.

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

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

All in all, valuing a company is as exciting as playing chess.

Viktor 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 models of strategies.

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

FSS CFO

The capitalization method is one of the methods for evaluating a business using an income approach. In essence, this is a variation of the discounted cash flow method, in which the value of a company is determined as the present value of its future earnings. The only difference is that the capitalization method assumes the stability of these incomes (or a constant rate of their growth).

Formula 1. Calculation of the market value of a company using the capitalization method

To assess the value of a company using the capitalization method, you have to:

conduct a retrospective analysis of business activities and prepare a forecast of changes in income in the future;
choose the type of income to be capitalized;
determine the period of activity for which income is to be capitalized;
calculate the capitalization rate;
calculate capitalized income;
make final adjustments.

The main objective of this method is to determine the level of income that will subsequently be capitalized. At the same time, it is important to choose the period of the company's activity, the results of which will be capitalized.

How to conduct a retrospective analysis of a business when assessing the value of a company using the capitalization method

A retrospective analysis of the company's activities is carried out according to the balance sheet and income statement for the last 3-5 years, as well as management reporting companies. It means analysis financial results activities, performance financial plan, efficiency of use of own and borrowed capital, identification of reserves for increasing the amount of profit, profitability, improving financial condition and solvency of the company. Based on the results of this analysis, one can choose type of income and period production activities companies for which this income is to be capitalized.

For a correct assessment of the financial results (income indicator) of the company, it is necessary to normalize them, i.e. exclude articles that were of a one-time nature and will not be repeated in the future. These articles include:

profit / loss from the sale of part of the company's assets;
income / loss from the satisfaction / non-satisfaction of legal claims;
receipt of insurance payments;
losses from forced shutdown of production, etc.

After normalizing the financial results, they need to be brought to current prices. For this, you can use, for example, consumer price indices published on website of the federal statistics service.

What indicator of income to choose when evaluating a business using the capitalization method

The following indicators can be selected as income subject to capitalization:

net profit (after taxes);
profit before taxes;
cash flow;
paid/potential dividends.

When evaluating large companies it is advisable to choose the amount of net profit, and small companies- profit before taxes, since in this case the effect of tax benefits is eliminated.

The value of the cash flow is used in the evaluation of companies whose assets are dominated by fixed assets, which makes it possible to take into account the policy of capital investments and depreciation charges at the enterprise.

Question: What type of cash flow can be used when valuing a business using the capitalization method

It could be cash flow for all invested capital (debt-free cash flow) or equity.

Debt-free cash flow does not take into account the change (increase or decrease) in the company's debt on loans. Based on this indicator, the market value of all invested capital is determined: both own and borrowed.

The cash flow for equity takes into account the change (increase or decrease) in the company's debt on loans. Based on it, the market value is calculated own funds companies.

When choosing one or another type of cash flow (profit) for business valuation, companies take into account what kind of funds it is formed. If at the expense of own funds, then the cash flow for equity is used to value the company. If by attracting borrowed funds, then debt-free cash flow is used.

Question: For what period should income be capitalized when valuing a business

The amount of dividends, as a rule, is used in the evaluation of minority stakes, because. for the majority shareholder, the attractiveness of the company lies, in the main, not in the profitable dividend policy, but in the growth of its capitalization.

It is worth noting that for capitalization, you can use the listed indicators not only for the current date, but also their average value for several previous periods based on retrospective data, for example, for 3-5 years.

The period of operation of the company, the results of which will be capitalized, may be:

first forecast year;
last reporting year.

The most correct option, taking into account the retrospective activities of the company, is considering the capitalization of income projected for the year following the date of assessment.

How to determine the capitalization rate to assess the value of a company

Capitalization rate most often calculated on the basis of the rate discounting taking into account long-term growth rates of cash flow. Methods for calculating the discount rate depend on what type of cash flow it is applied to.

There are several models for constructing a capitalization rate based on the discount rate depending on various parameters, for example, on the level of forecast income and the forecast period (Gordon, Ring, Inwood models).

Gordon model. Assumes an infinite duration of the business and a stable growth rate of cash flow. Within the framework of this model, the rate for the forecast or current year is determined. In the first case, the generally accepted calculation formula is used. In the second case (when calculating the rate for the current year), use formula 2

Formula 2. Calculation of the capitalization rate using the Gordon method for the current year

Ring model. This model is based on the need to comply with the following conditions:

the ultimate life of the asset, at which its residual value is zero;
the remaining lifetime of the asset is known.

This model is rarely used because it assumes that revenues will decline each year.

Formula 3. Calculation of the capitalization rate using the Ring method

Inwood model. Used under the following assumptions:

the ultimate life of the business;
the expected return is less than the initial investment;
residual value will be zero after a certain number of periods.

This is a more popular model, since the forecast period implies the entire period of use of the object, until it is completely depreciated.

Formula 4. Calculation of the capitalization rate using the Inwood method

Question: Is it possible to determine the capitalization rate without taking into account the discount rate

Determining the capitalization rate based on the discount rate is the most common way, however, there are other methods for calculating this capitalization rate, among which are:

1. Method of market data analysis. The capitalization rate under this method is determined on the basis of market information on the earnings and selling prices of comparable companies;

2. Method of payback period of investments. The method involves calculating the capitalization rate based on the payback period of the investment.

Question: How to determine the capitalized income of a company

At this stage, business valuation using the capitalization method is to determine the preliminary value of the business (capitalized income of the company). It is determined by formula 1, based on the amount of income to be capitalized and the capitalization rate.

This cost of the company will be preliminary, because. to determine the final cost, the resulting cost indicator must be adjusted for excess and non-operating assets that do not participate in the formation of cash flow, excess (deficit) of own working capital, as well as the net amount of deferred tax assets and deferred tax liabilities.

Non-operating assets may include:

obsolete or not put into operation intangible assets;
real estate not participating in manufacturing process;
objects of construction in progress;
non-functioning profitable investments in material assets and financial investments.

In Russian conditions, the turnover does not always reflect the real income of the business owner - it does not take into account costs. Therefore, the main factor affecting the value of a business is the income it brings.

Business value - main factors

How to determine the real value of a business? For example, British business brokers assume that the cost of a cafeteria or a small restaurant is usually equal to 3 - 4 months of sales. Pharmacies, in their opinion, should be sold on average at a price corresponding to 100-day sales.

In Russian conditions, the turnover does not always reflect the real income of the business owner - for example, costs that are individual for each enterprise are not taken into account. Therefore, the main factor affecting the value of a business is the income it brings. We are talking about entrepreneurial income - the amount that the owner of the enterprise earns every month after all payments: taxes, salaries to employees, etc. In addition to the profits of the enterprise, it can include the salary of the owner as a general director, as well as the salaries of other family members if they work for firm.

Under the current market conditions, Russian investors, when acquiring a business operating on leased premises, consider it acceptable if the price of the business is equal to the entrepreneurial income for 7-18 months. In rare cases, investors agree to pay for an enterprise operating on leased premises an amount equal to 20 to 30 months of income. For companies sold together with owned real estate, the yield requirements are not as high.

The price is considered normal, equal to the total profit for 24 - 60 months. In any case, much depends on the goals of the investor. For example, if a business is acquired for the purpose of quick resale, then for the investor, the profit of the enterprise will not play such a big role. Other factors that affect the value of a company include:

Supply and demand. The value of a business directly depends on the quantitative ratio of potential buyers and companies offered for sale. Two years ago nai in great demand used by enterprises in the service sector, catering and food business. For example, investors were willing to pay between $30,000 and $200,000 for a beauty salon that generates minimal or no income at all.

Business type. Companies that do not require specialized training sell for more than those that require specialized skills and therefore have a limited buyer market. For example, many buyers regard car washes as businesses that do not involve any original marketing moves, so investors are sometimes willing to pay more than 30 monthly profits for a car wash.

Risk. For many buyers, the lack of risk or dark side of the deal justifies the higher price. An investor is willing to pay more for a company with white bookkeeping, although its income will undoubtedly be lower than that of a gray counterpart. Another example is network companies.

They are characterized by increased liquidity - their cost is 15 - 20% higher than similar enterprises in terms of income. This is explained by the lower risks associated with the acquisition of networks - the company will not incur significant losses if there are problems with renting one of the points or if a competing organization opens nearby.

Availability of assets. As already mentioned, when determining the value of a business, the income it brings is of key importance. If the company owns high-tech expensive equipment with long useful lives, real estate, the cost of cash flow is added liquidation value these objects. However, the cash flow still remains the determining factor, and the equipment is considered as a tool without which it is impossible to obtain this cash flow.

The same factors are trained staff and customer base. In exceptional cases, it may be business reputation(goodwill), but for this the company really must have some outstanding intangible asset and sell its products or services at a price higher than the market price.

Personal goals. Just as a seller may be emotionally attached to their business, a buyer may expect a business to meet certain non-financial criteria. Therefore, an investor may be willing to pay more for a business that will bring him satisfaction, in line with certain personal values and ideals.

Motivation. How strong is the seller's desire to sell the business? How strong is the buyer's desire to acquire the business? The buyer should always Special attention on the reason for the sale - after all, it is possible that the store is being sold due to the fact that a large supermarket is being built nearby. Among other factors great importance have the company's reputation in the market, the possibility of increasing the market share, the guarantee of maintaining the client base in the event of a change of ownership, the presence of a well-coordinated team, etc.

Instruction

For a qualitative assessment of the value of a business, it is necessary to estimate the entrepreneurial income, that is, the amount that the owner of the enterprise receives every month after paying employee salaries and taxes. In addition to company profits, entrepreneurial income may include wages owner, which he receives in the position CEO, as well as wages of other family members in the firm.

Next, you need to find out whether the company operates on rented or on its own premises. If it uses , Russian investors consider it normal if the company's price is equal to 7-18 months. In some cases, for a number of reasons in the acquisition of a particular business, investors are willing to pay an amount equal to the profits of the past 24-30 months. Yield requirements for businesses that are offered with owned real estate are usually not that high. A value equal to the total income for a period of two to five years is considered acceptable.

When determining the real value of a business, use another important criterion - the quantitative ratio of those offered for sale to potential buyers. Over the past years, companies in the service sector, food businesses, Catering.

Next, you need to assess how high-tech the organization is. Firms are sold quite expensively, for the management of which one does not need to have specialized training. Thus, most investors regard car washes as companies whose development does not require costly and original marketing strategies, so buyers are willing to pay about 30 monthly profits for an enterprise.

Calculate everything possible risks. The absence of "dark" sides in the transaction for some buyers justifies the higher cost. Companies with completely transparent accounting will have a big price, even if not with very high profits.

Do not forget to evaluate the assets of the enterprise. In the presence of expensive and high-tech equipment, as well as real estate property, the salvage value of these objects must be added to the cost.

When determining the value of a business, consider trained staff and a stable client base companies. The business reputation of the company is also important.

Factors affecting the value of the object

The value of the object being valued on the market can be stated as a calculated indicator, and its market price - as a result of the auction, of the form economic activity enterprise, the solvency of a potential buyer, the availability of other investment objects, etc. The cost is determined by profitability and profitability, socio-economic significance, uniqueness and other characteristics of the products, as well as by the work performed and the services provided.

Value results are based on the value of stock prices, reflecting the market's expectations of its future performance. A change in share prices (with a subsequent change in the added market value) determines the results of the company's management in this direction. There are many important factors that prevent stock prices from being used as the primary measure of value creation. The price level in the market can change and affect all rates. Changes in product prices can also affect the amount of capitalization.

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