Valuation of company assets. Cost approach to business valuation: essence, calculation principles and methods used, pros and cons

25.09.2019

COURSE WORK

at the rate: "Business Valuation"

on this topic: « BUSINESS ASSESSMENT USING A COST APPROACH. METHOD FOR CALCULATING THE VALUE OF NET ASSETS"

Introduction

When selling a company, it is necessary to objectively assess its ability to increase its value, to be profitable, i.e. bring income to the owner. Those. it is necessary to calculate the market value of the enterprise - the most likely price of the enterprise at which it will be sold.

Calculation of the market value of an enterprise can be carried out using three fundamentally different approaches: the income approach, the market (comparative) approach and the cost (property) approach.

In this course work a cost-based approach to valuation is used, the relevance of which is primarily due to the availability, as a rule, of reliable initial information for calculation, as well as the use of methods traditional for the domestic economy for assessing the value of a business, based on an analysis of the value of the enterprise’s property and its debt.

The lack of necessary conditions for the use of income and market approaches justifies the use of a cost approach to valuation. The use of the market approach is limited by the lack of information on the sale of existing enterprises, which does not make it possible to use the transaction method. A “weak” stock market limits the possibility of using the capital market method. And the lack of market information on the financial and economic activities of enterprises similar to the one being assessed excludes the possibility of using the method of valuation multipliers.

Lack of necessary and sufficient market information on capitalization and income discounting rates. Limits the use of income approach methods (capitalization method and discounted cash flow method)

Main target of this course work – evaluate the enterprise by determining its market value for the current period.

To achieve this goal, the following are defined: tasks :

· Study the theoretical aspects of business valuation using income, property and market approaches.

· Identify positive and negative sides application of the property approach to business valuation.

· Identify the features of applying this approach both in modern market conditions and in the enterprise.

Object Research in this course work is the use of a cost approach to business valuation.

Subject research is the application of the cost calculation method net assets at the enterprise.

Chapter 1. Theoretical aspects property approach to business valuation

1.1. The essence and scope of application of the property approach

The property (cost) approach to business valuation considers the value of the enterprise from the point of view of the costs incurred. The book value of an enterprise's assets and liabilities due to inflation, changes in market conditions, and accounting methods used, as a rule, does not correspond to market value. As a result, the appraiser is faced with the task of adjusting the balance sheet of the enterprise. To do this, the reasonable market value of each balance sheet asset is first assessed separately, then the current value of the liabilities is determined, and finally, the current value of all its liabilities is subtracted from the reasonable market value of the total assets of the enterprise. The result shows the estimated value of the enterprise's equity.

Equity = Assets - Liabilities.

The main feature of the cost approach is an element-by-element assessment, that is, the property complex being assessed is divided into its component parts, each part is assessed, and then the value of the entire property complex is obtained by summing the costs of its parts.

The basic formula in the property (cost) approach is: Equity = Assets - Liabilities.

This approach is represented by two main methods:

Net asset method;

Liquidation value method.

Scope of application

The cost-based valuation approach is the most appropriate:

When assessing government facilities;

When calculating the value of property that is intended for special use (without generating income), these are schools, hospitals, post office buildings, cultural facilities, train stations, etc.;

When revaluing fixed assets for accounting purposes;

When assessed for tax and insurance purposes when judicial section property;

When selling property at public auction.

1.2. Advantages and disadvantages of the property approach

Advantages:

· based on an assessment of existing assets, i.e. has an objective basis;

· when valuing individual components of assets, all three approaches to valuation can be used: income, cost and market.

Flaws:

· static, i.e. does not take into account business development prospects;

· does not take into account the main financial and economic indicators of the activity of the enterprise being assessed.

1.3. The main stages of calculating the value of a business using the net asset method

Calculation of the net asset value method includes several stages:

1. The real estate of the enterprise is assessed at a reasonable market value.

2. The reasonable market value of machinery and equipment is determined.

3. Intangible assets are identified and assessed.

4. The market value of financial investments, both long-term and short-term, is determined.

5. Inventories are converted to current value.

6. Accounts receivable are assessed.

7. Future expenses are estimated.

8. The enterprise's liabilities are translated into current value.

9. Cost is determined equity by subtracting the current value of all liabilities from the reasonable market value of the total assets.

1.4 Valuation of the enterprise’s real estate at a reasonable market value.

Grade real estate enterprise can be given using three approaches: profitable, comparative (market) and cost-based.

1.4.1. Application of the income approach

The income approach to real estate valuation includes two methods:

Income capitalization method;

Discounted cash flow method.

Income capitalization is a set of methods and techniques that allows you to evaluate the value of an object based on its potential to generate income. The income capitalization method is used to value real estate that generates income for the owner. Income from owning real estate can, for example, represent current and future income from renting it out, income from a possible increase in the value of real estate when it is sold in the future. The result of this method consists of both the cost of buildings, structures, and the cost of land.

Net operating income is chosen as an indicator describing future income. It represents the calculated steady value of the expected annual net income received from the subject property after deducting all operating expenses and reserves, but before servicing mortgage debt, if any, and taking into account depreciation charges. Net operating income is based on the assumption that the property will be leased at market rents and on the assumption that this income is projected for one representative year.

The value of real estate is calculated using the formula:

C = NAV / Capitalization rate,

Where C is the current value of the property;

NOR – net operating income;

SC – capitalization rate.

The calculation of net operating income begins with the calculation of gross potential income (GPI), which is the expected total market rent. And other income of the latter before the valuation date of the year. Calculation of the PPV requires the appraiser to know the rental market to which the property being valued belongs. As a rule, the rental rate depends on the location of the property, its physical condition, the availability of communications, the lease term, etc.

Potential gross income is the income that can be received from real estate at 100% utilization without taking into account all losses and expenses. PPV depends on the area of the property being assessed and the established rental rate and is calculated using the formula:

PVD = P * Ca, Where

P - area for rent,

Sa - rental rate for 1 square meter.

That is, the PVD is assessed based on the analysis current rates and tariffs existing in the real estate market for comparable properties. The appraiser must compare the property being appraised with other similar rental properties and make adjustments for differences between them. If the objects are similar except for one or more significant components, then adjustments can be calculated based on market data. When the amount of the adjustment cannot be confirmed by market data, the appraiser determines it by expert means.

However, the calculated ERP may be changed due to vacancies (underutilization) of the property or shortfall in rent collection. That is, the estimated losses from underutilization of the property and losses during collection of payments are assessed. Reducing the PVD by the amount of losses gives actual gross income(DVD), which is determined by the formula:

DVD = PVD - Losses .

To obtain the NOR, a cost analysis is carried out. Owner's expenses are the ongoing costs associated with owning and operating a property. Periodic expenses to ensure the normal functioning of the facility and the reproduction of income are called operating (maintenance) expenses.

Operating expenses are usually divided into:

Conditionally fixed expenses;

Conditionally variable, or operating, costs;

Replacement costs, or reserves.

TO conditionally permanent These include expenses the size of which does not depend on the degree of operational load of the facility and the level of services provided (for example, insurance payments, land rent, property tax).

TO conditional variables include expenses, the amount of which depends on the degree of operational load of the facility and the level of services provided. Conditionally variable expenses are:

· utility costs (electricity, gas, telephone, water, sewerage, plumbing);

· garbage removal;

· costs of maintaining the territory;

· management costs, salaries of service personnel, as well as related taxes;

· contractual services: fire protection system, elevator, security), etc.

TO replacement costs include the costs of periodic replacement of wear-out components (usually such components include roofing, flooring, sanitary equipment, electrical fittings, replacement of furniture, telephone system). The calculation assumes that money is set aside for this, although most property owners do not actually do this. If the owner plans to replace wear and tear components during the ownership period, then these deductions must be taken into account when calculating the value of the property using the method in question.

The projected net operating income is determined by reducing the operating income by the amount of operating expenses. Thus, NOR is determined by the formula:

ORD = DVD - Operating expenses

(excluding depreciation charges).

The capitalization coefficient (rate) is calculated. The capitalization rate is a coefficient that establishes the dependence of the value of an object on the expected income from operation. There are several methods for determining the latter:

Cumulative construction method;

Method for determining the capitalization ratio taking into account the reimbursement of capital costs;

Linked investment method, or investment group technique;

Direct capitalization method.

This course work uses the cumulative construction method:

The capitalization rate in real estate valuation consists of two elements:

The rate of return on an investment (rate of return on capital) is the compensation that must be paid to an investor for the value of money, taking into account time, risk and other factors associated with a particular investment;

Norms for return (reimbursement) of capital. Return of capital refers to the repayment of the amount of the initial investment. Moreover, this element of the capitalization ratio applies only to wear and tear, i.e. losing value of part of the assets.

The rate of return on capital is based on:

Risk-free rate of return;

Risk premiums;

Premiums for low liquidity of real estate;

Investment Management Awards.

Risk-free rate of return. It is used as a base, to which the remaining (previously listed) components are added. To determine the risk-free rate, you can use both average European indicators for risk-free operations and Russian ones. If average European indicators are used, a premium for the risk of investing in a given country, the so-called country risk, is added to the risk-free rate. The risk-free rate determines the minimum compensation for investing in a given property.

Risk premium. All investments, with the exception of those previously listed, have more than high degree risk, depending on the characteristics of the type of real estate being assessed. The greater the risk, the higher the value should be interest rate to compensate for it.

Low liquidity premium. Liquidity measures how quickly a property can be converted into cash. Real estate is relatively low-liquidity. This premium is especially high in countries where mortgages are poorly developed.

Investment Management Award. The riskier and more complex the investment, the more competent management it requires. Investment management should not be confused with property management, the costs of which are included in operating expenses.

On last stage using the income capitalization method, the value of real estate is determined by dividing the projected net operating income by the capitalization ratio:

Property value = NPV/capitalization rate.

1.4.2. Application of the comparative (market) method

The comparative (market) approach is presented:

· sales comparison method;

· gross rent multiplier method.

Sales comparison method. This method is based on the comparison and analysis of information on the sale of similar real estate, usually over the last 3-6 months. The fundamental principle of the comparative sales method is the principle of substitution, which states that if there are several properties on the market, the investor will not pay more for a given property than the cost of real estate of similar utility. Utility is understood as a set of characteristics of an object that determine the purpose, possibility and methods of its use, as well as the size and timing of the income received as a result of such use. This method is objective only if there is a sufficient amount of comparable and reliable information on recent transactions.

This method requires a database of completed transactions, including information about the terms and prices of transactions, sellers and buyers. The appraiser must find out whether the buyer or seller acted under financial pressure, whether both parties to the transaction were independent, whether they had typical of this market information, whether they acted economically rationally, whether the financing was typical for the market. To analyze transactions made with objects comparable to the one being valued, it is necessary to identify the market segment for which these objects are typical.

Method of gross rent multiplier (gross income multiplier). The gross rental multiplier is the ratio of the sales price to either potential or actual gross income.

1.4.3. Application of the cost method

This method includes several steps:

1. The value of the land plot on which the buildings and structures are located is determined.

2. The replacement cost or replacement cost of the building and structure is assessed as of the actual valuation date.

Under replacement cost means the cost of construction in current prices on the actual date of valuation of an exact copy of the valued object from the same building materials, subject to the same construction standards, according to the same project as the property being assessed. If the calculation of replacement cost is not possible or appropriate, the replacement cost is determined.

Under replacement cost refers to the cost of construction at current prices on the actual date of valuation of an object with a utility equal to the utility of the object being valued, but using new materials in accordance with current standards, design, layout.

Whether replacement or replacement costs are calculated should be reported and the choice should be clearly justified to prevent misunderstanding.

Determining the full cost of construction includes the calculation of:

Direct costs (cost of materials, depreciation, cost of temporary buildings, structures, utilities, utilities, wages construction workers, cost of safety measures, etc.);

Indirect costs of professional fees for architects, design engineers, accountants and lawyers for consulting, developer overheads, licensing fees, interest on construction loans, marketing expenses for the sale or resale of property, advertising fees during construction, title change expenses . Using replacement costs instead of reproduction costs in the valuation process allows you to remove some "obsolete" elements;

Entrepreneurial income.

Entrepreneurial income represents the amount that the investor plans to receive in excess of the costs of implementing the project, taking into account the risk and return on comparable objects. Taking into account global calculation practices, business income is determined at 15% of construction costs.

Full cost entrepreneurial

cost = construction + construction income

3. All types of depreciation of buildings and structures are calculated, taking into account their physical, functional, technological and economic obsolescence.

Physical obsolescence- loss of property value associated with use, wear and tear, destruction, increased maintenance costs and other physical factors leading to a reduction in the life and usefulness of the property.

Functional obsolescence- loss of property value associated with the inability to perform the functions for which it was intended. Functional obsolescence is the result of the internal properties of a property and is associated with factors such as structural deficiencies, excess operating costs, and is manifested in outdated building architecture, layout amenities, utilities, etc. In other words, the object ceases to meet modern standards in terms of its functional usefulness.

A form of functional obsolescence is technological obsolescence, which refers to the loss of value caused by changes in technology, as a result of which the asset becomes less productive, more expensive to operate.

Economic obsolescence characterized by a loss in the value of an asset caused by external factors, such as changes that reduce demand or increased competition.

4. The residual value of buildings and structures is determined as the difference between the cost of reproduction (cost of restoration or replacement cost) and total depreciation.

5. The full cost of the property is calculated by adding the cost of the land plot to the residual value of buildings and structures.

Valuation of land plot There are differences between standard and market values of land. The appraiser deals, first of all, not with the standard price of land, but with the market price, which is formed not least under the influence of supply and demand. When assessing the market value of a land plot, it is necessary to determine the composition of the rights to be assessed. Private property is recognized only for plots with the following conditions of use:

· individual (housing) construction;

· peasant (farm) economy;

· personal subsidiary, gardening or dacha farming;

· privatized plots for enterprises

To assess the market value of a land plot, you must have the following information:

· title of ownership and registration data for the land plot;

· physical characteristics site (topography, engineering-geological, hydrogeological characteristics of the site, environmental parameters, etc.);

· data on the relationship of the site with the environment;

economic factors characterizing the site (for example, the nature economic development district, etc.).

The market value of plots is assessed using the following main methods:

Residue technique method for land;

Using the weighted average capitalization ratio method;

Sales comparison method;

Partitioning method;

Capitalization method;

Using the gross rent multiplier method.

Today, in most cases, the object of assessment is not the absolute (full) ownership of a land plot, but only the right to use a long-term lease. Accordingly, the market expression of this valued right is no longer the market (sale) value of the land plot, but the market value of the long-term lease right.

Estimation of the cost of buildings and structures

Before moving on to assessing the cost of buildings and structures, the appraiser must not only read the technical documentation, but also inspect the buildings and structures. This will allow him to draw up a detailed description of the assessment object, which will give the characteristics of external and internal structures and engineering systems.

Estimation of replacement cost or replacement cost is carried out:

Using the comparative unit method (cost standards for construction work are developed, multiplied by the area or volume of the object being assessed, and adjustments are made for the characteristics of the object being assessed);

Using the element-by-element calculation method (breaking the building down into individual components and calculating the costs required to install a specific component in a building under construction as of the valuation date);

Index valuation method (the book value of the object is multiplied by the corresponding index for the revaluation of fixed assets).

Determination of wear and tear of buildings and structures

After determining the full cost of restoration or replacement, depreciation is subtracted from the resulting value to calculate the residual value of the item. The concept of depreciation used by appraisers and the concept of depreciation used by accountants are different from each other.

The term “wear and tear” in valuation theory is understood as the loss of the utility of an object, and, consequently, its value for various reasons, due to physical destruction, functional and external obsolescence, and not only due to the time factor. This term is used in a different sense in accounting, where depreciation is understood as a mechanism for transferring costs to the cost of production over a period of time. regulatory period object services.

Physical deterioration- reduction in the value of property due to the loss of its original properties by its elements.

Functional wear- reduction in the value of property due to loss of ability to be used for its intended purpose.

External wear caused by changes in relation to the assessed object of factors: “aging” of the environment, changes environmental conditions, changes in the market situation, changes in financial and legislative conditions, etc.

In assessment practice, several methods are used to determine the wear and tear of buildings and structures:

· lifetime method;

· partitioning method;

1.4.4. “Lifetime” method

The essence of the “lifetime” method for determining depreciation is the assumption that the loss in value of an object due to depreciation is proportional to its age. This method is based mainly on inspection of the object and is based on determining the ratio of “effective age” and “economic life”, which is equated to the ratio of “cumulative depreciation” and “replacement cost”.

Physical life span is the period of time during which a property actually exists (from the date of commissioning until the moment of its destruction).

Economic life is the period of time during which a property contributes to the value of the property, including profit from its use.

Physical age - the period of time from the date of commissioning to the date of assessment.

Effective age is the age of “how old the property appears”, taking into account its technical condition, appearance, design and economic factors, affecting its cost.

Remaining economic life is the period of time from the valuation date to the end of the economic life, that is, until the date when the property ceases to contribute to the value of the property (its contribution becomes zero due to aging).

1.5. Assessment of the market value of machinery and equipment

After determining the market value of the property, the appraiser must calculate the market value of the technical equipment of the enterprise, i.e. the cost of its working and power machines, measuring and control instruments, equipment, devices, computer technology, Vehicle etc.

Machinery and equipment objects are characterized by the following distinctive features:

Not rigidly connected to the ground;

They can be moved to another place without causing irreparable physical damage, both to themselves and to the real estate to which they were temporarily attached;

They can be both functionally independent and form technological complexes.

When assessing machinery and equipment, it is important to choose the correct assessment methods. These methods are based on three approaches: cost, comparative (market), and income.

1.5.1.Cost approach to the assessment of machinery and equipment.

It is based on the principle of substitution. To determine the cost of restoration or replacement cost, which is the basis of calculations in the cost approach, it is necessary to calculate the costs (expenses) associated with the creation, acquisition and installation of the object being assessed.

The cost of restoring the valued machinery and equipment is understood as either the cost of reproducing their complete copy at current prices on the valuation date, or the cost of acquiring a new object that is completely identical to the given one in design, functional and other characteristics, also at current prices. Residual value is defined as replacement cost minus cumulative depreciation.

The replacement cost of the machine or equipment being valued means the minimum cost of acquiring a similar new object that is as close as possible to the one being valued in all functional, design and operational characteristics, at current prices. Residual replacement cost is defined as replacement cost minus depreciation.

When establishing the similarity of machines and equipment, three levels can be distinguished:

Functional similarity (in scope, purpose);

Structural similarity (in terms of design, composition and arrangement of elements);

Parametric similarity (by parameter values).

When functional, constructive and parametric similarities are fully achieved, it is customary to talk about the identity of objects, and when there are approximate and partial similarities - about analogy.

In the cost approach to the assessment of machinery and equipment, the following main methods can be distinguished:

method of calculation based on the price of a homogeneous object(when using this method, the appraiser selects a homogeneous object that is similar to the one being appraised, first of all, in terms of manufacturing technology, materials used, structures, the price of which must be known, determines the full cost of production, calculates the full cost of the appraised object and determines its replacement cost);

element-by-element calculation method(a list of components and assemblies of the object being evaluated is compiled, price information on them is collected, and full cost object of assessment and its replacement cost is calculated);

index valuation method ( the base value of the valuation object is brought, i.e., the initial book value or replacement value according to the previous revaluation to modern level using an index or chain of indexes of price changes for the corresponding group of machinery or equipment for the corresponding period).

Physical deterioration machinery and equipment is predominantly measured using the following methods:

Lifetime method . The percentage of physical depreciation when applying this method is calculated as the ratio of the effective age to the economic life.

Method of integrated assessment of technical condition . It is advisable to use special rating scales.

Functional wear. It represents a loss in value caused either by the appearance of cheaper machines and equipment, or by the production of more economical and productive analogues. Functional wear is determined by experts or based on a model:

External wear determined by the related sales pairs method. Two comparable objects are compared, one of which shows signs of external wear and the other does not. The difference in sales prices is interpreted as external (economic) wear and tear.

Comparative (market) approach to assessing the cost of machinery and equipment presented primarily by direct comparison. An analogue object must have the same functional purpose, full qualification similarity and partial design and technological similarity.

The calculation using the direct sales comparison method is carried out in several stages.

1. Finding an analogue object.

2. Making adjustments to the price of the analogue. There are two types of adjustments:

Coefficients introduced by multiplying by a coefficient;

Corrections made by adding or subtracting an absolute correction.

When applying the direct comparison method, a certain sequence must be followed when making corrections: first, coefficient corrections are made, and then correction ones.

1.5.2. Income approach to the valuation of machinery and equipment

To implement the income approach, it is necessary to predict the expected income from the property being valued. In relation to machinery and equipment, it is impossible to directly solve this problem, since income is created by the entire production and property complex. When using the income approach, a step-by-step solution to the problem is proposed:

1. Operating income from the functioning of the production system (either the entire enterprise, or a workshop or site) is calculated.

2. The residual method determines that part of the income that can be attributed to the machine park of this system.

3. Using the discounting method or the capitalization method, the cost of the entire machine park is determined.

3. Valuation of intangible assets

A number of Russian regulatory documents define intangible assets and discuss their types. Based on the material presented in these documents, it can be noted that intangible assets include the following assets:

Either having no material form, or material form, the form of which is not essential for their use in economic activity;

Capable of generating income;

Purchased with the intention of using it for a long period (more than one year).

Intangible assets can be divided into four main groups:

1.Intellectual property:

· rights to industrial property objects;

· rights to production secrets (know-how);

2. Property rights (rights to use land plots, natural resources, water bodies). A license serves as confirmation of such rights.

3. Organizational expenses (fees to lawyers behind compilation constituent documents, services for registering a company, etc.), but all these expenses are incurred at the time of creation of the enterprise.

4. The price of a company is the value of its business reputation

IN practical activities An enterprise often faces the problem of valuing intangible assets. This happens due to:

Purchase and sale of rights to objects intellectual property;

Voluntary sale of licenses for the use of intellectual property;

Compulsory licensing and determination of damages resulting from violation of intellectual property rights;

Making contributions to the authorized capital;

Business valuation;

Incorporation, privatization, mergers and acquisitions;

An assessment of an enterprise's intangible assets carried out in order to make changes to the financial statements.

Work on the assessment of intangible assets, primarily intellectual property as part of intangible assets, is carried out in a certain sequence. The examination is carried out:

· objects of intellectual property;

· security documents (patents and certificates);

· intellectual property rights.

1.5.3. Application of the income approach in the valuation of intangible assets

The income approach is presented:

Excess profits method;

Discounted cash flow method;

Royalty exemption method;

Profit advantage method.

Excess Profit Method is based on the premise that excess profits are brought to the enterprise by intangible assets not reflected in the balance sheet, providing a return on assets and on equity capital above the industry average. This method primarily evaluates the value of goodwill.

Discounted cash flow method. When discounting cash flows, the following work is carried out:

1. The expected remaining useful life is determined, i.e. the period over which projected earnings must be discounted.

2. Cash flow (CF) and profit generated by an intangible asset are forecast.

3. The discount rate is determined.

4. The total present value of future income is calculated.

5. The current value of income from an intangible asset in the post-forecast period is determined (if necessary).

6. The sum of all income values in the forecast and post-forecast periods is determined.

Royalty waiver method. This method is used to estimate the value of patents and licenses. The owner of a patent grants another person the right to use the intellectual property for a certain fee (royalty), which is expressed as a percentage of the total revenue received from the sale of goods produced using the patented product.

Profit advantage method. This method is often used to estimate the value of inventions. It is determined by the profit advantage that is expected to be obtained from their use. Profit advantage refers to the additional profit resulting from the intangible asset being valued.

It is equal to the difference between the profit received from the use of inventions and the profit that the manufacturer receives from the sale of products without using the invention. This annual profit advantage is discounted by the expected period of its receipt.

Valuation of industrial inventories. Inventories are valued at current prices, taking into account transportation and warehousing costs. Obsolete inventory is written off.

Estimation of future expenses. They are valued at face value if there is still a benefit associated with them. If there is no benefit, then the amount of future expenses is written off.

Valuation of accounts receivable. An analysis of receivables by maturity, identification of overdue debts and their subsequent division into:

Hopeless (it will not be included in the economic balance);

Real, i.e. the one that the company still hopes to receive (it will be included in the economic balance).

When analyzing accounts receivable, the appraiser must check whether bills issued by other enterprises are questionable. Unwritten receivables are valued by discounting future principal and interest payments to their present value.

Valuation of funds. This article cannot be re-evaluated.

The value of equity is determined by subtracting the current value of all liabilities from the reasonable market value of the amount of assets.

Chapter 2. Calculation of business value using the property approach using the example of Vahidas LLC

Brief description of the research object

CJSC Progmat was founded in 1999. The main direction of its activity is the development and production of magnets of various diameters based on MDP (finely dispersed powder).

2. Calculation of enterprise value using the net asset method

2.1 Determination of the value of non-current assets of the enterprise.

The assessment of the cost of buildings and structures is preceded by a technical inspection of the building. This will allow him to make detailed description object of assessment, where the characteristics of external and internal structures and engineering systems will be given. Below is an example of an inspection.

Table 1.

Structural elements of buildings.

Structural element	Characteristic	Technical condition
Foundations	Reinforced concrete	Base cracks, partial destruction of blocks
Partitions	Brick	Peeling of plaster walls and cornices
Floors	Brick	Weakening of brickwork, deep cracks in areas where they meet adjacent structures
Floors	Reinforced concrete	Shrinkage cracks in slabs, traces of leaks on walls and slabs in places where the slabs rest on external walls
Roof	Slate on wooden sheathing	Chips and cracks, leaks.
Floors	Linoleum, ceramic tiles	Chips and cracks in ceramic tiles
Exterior decoration	Plastered	Peeling and falling off of wall plaster
Interior decoration	Glue whitewashing of ceilings, oil painting of walls	Traces of leaks, rusty spots, peeling and falling off of plaster, massive stains on the painted surface, etc.

2.1.1. Determining the value of real estate using the cost method.

To determine the value of real estate, it is necessary to calculate the total area of the enterprise. In our case, the area of Progmat CJSC will be determined by summing up the following areas:

Table 2.

Calculation of building volumes and actual building areas .

Table 3.

Summary table for determining the market value of buildings .

1. General information
Object name	Building 1	Building 2	Building 3	Building 4
Purpose	Official	Official	Official	Official.
Year of construction	1964	1973	1973	1983
2. Determination of replacement cost
Unit	cube m	cube m	cube m	cube m
Unit cost measurements, rub.	27	23	20	24
(square)	50641	16334	468	10731
Conversion factor to 1984 prices.	1,21	1,21	1,21	1,21
Conversion factor to current prices	9,75	9,75	9,75	9,75
Full replacement cost, rub.	12546181	4433047	110448	3039019
	Sewage networks		73008
	23794759
3. Determination of residual replacement value
Physical deterioration, %	50	51	56	53
Loss of value due to physical wear and tear, rub.	8067716	2261408	62326	1611671
Residual replacement value	8067716	2172724	48971	1429218
4. Determination of market value
Functional wear, %	6	6	6	6
External wear, %	6	6	6	6
Market value (excluding VAT), rub.	7099590	1911998	43094	1257711
Total	10312394

Based on the data in Table 3. The market value determined by the cost method is 10312394 rub.

2.1.2. Determining the value of real estate using the income capitalization method.

The method is used to evaluate real estate that generates income for the owner. Income streams during the holding period and proceeds from subsequent resales of the property are capitalized to present value using a capitalization rate. Thus, the formula for calculating the value of property on the valuation date is:

C = NAV / Capitalization ratio.

The calculation procedure has the following sequence:

1. We calculate (PVD), which is the expected total value of market rent and other income.

Let's analyze the company's income. All income for the assessed property is projected on the basis of rent for premises for various functional purposes. The market rental rate found as a result of market research (adjustment using the relative method) comparative analysis) is 155 rubles. per square meter per month including utility bills. Consequently, the annual rent is 1860 rubles. The enterprise has no other income that can be received in the process of owning property.

Thus, the PVD of an object with an area of 12348 sq. m will be:

PVD = 15311520 rub.

2. Estimated potential gross income may be subject to change due to anticipated losses due to vacancy, changes in tenants and non-payment of rent - the appraiser must take into account that there is always a possibility that part of the rent will not be collected during the projected period of ownership of the property . In our case, the average load is 40%, so the losses from underloading are:

Mon = 13780368 rub.

We will set the tolerance for “vacancies and shortfalls in funds raised” at 10%. Therefore, the amount of losses will be:

P = 2296728 rub.

Thus, the actual gross income will be:

DVD = 6890184 rub.

3 . To obtain net operating income (NOI), the appraiser conducts an expense analysis.

Cost analysis. The expenses of the owner of a property complex are divided into three groups: constant (fixed) expenses that do not depend on the degree of occupancy of the property; operational (maintenance) expenses - the costs of maintaining the property, providing services to tenants and maintaining an income stream; reserve for replacement (taken into account during assessment). Thus, the general list of expenses consists of the following main items:

Property tax (2%) – RUB 459,346.

Utility bills (5 rubles per sq.m. per month) – 655,740 rubles.

Insurance payments (2%) – RUB 459,346.

Reserves for major renovation(1.2%) – 275,608 rub.

Reserves for current repairs (1.1%) – 252,640 rubles.

Facility management costs (10%) – RUB 2,296,728.

CHOD = 741828 rub.

4. We determine the capitalization rate.

In this course work, to calculate the capitalization rate, we use cumulative construction method, based on which the interest rate can be divided into four components:

· Risk-free component – 12%,

· Risk compensation – 5%,

· Compensation for low liquidity – 3%,

· Compensation for investment management – we do not take into account

· The total value of the capitalization rate is 20%.

The formula for calculating the value of property on the valuation date is:

C = CHOD/SC

Table 4.

Calculating the value of real estate using the direct capitalization method .

Based on the data in Table 4, the market value of real estate, calculated by the income capitalization method, is 14750616 rub.

2.1.3 Valuation of real estate using the sales comparison method.

This method is based on the fact that the value of any property depends on the prices that have currently prevailed in the real estate market for similar or similar property.

According to the sales comparison method, the value of a property is determined by the prices of recent purchase and sale transactions of similar (comparable) properties, after adjustments have been made to these prices to compensate for the differences between the property being assessed and compared. At the stage of collecting initial information, it was not possible to find data on purchase and sale transactions of objects similar to the one being valued. The reason was the concealment of information about the terms of sale and the real price of the object. No offers for the sale of similar properties were found. Therefore, it was not possible to apply this method in practice.

Based on their real estate value determined by cost and income approaches T justified = 11643860 rub.

2.2. Determining the value of the company's current assets.

2.2.0 Inventories and costs of the enterprise.

2.2.1. Stocks of material resources are grouped according to their liquidity to identify the size of illiquid assets for the purpose of further write-off. Estimation of the value of an enterprise's inventories of material resources using the cost method within the framework of the cost approach is carried out on the basis of financial documents at the price of their acquisition. In our case, it is 151,200 rubles.

Applying the market method to assessing the value of an enterprise's inventories of material resources, we value the inventories at current market prices. Based on this, we can conclude that it is possible to sell 70% of material resources without loss of value, i.e. - 105,840 rubles. With a partial loss of value of 20%, i.e. - 30,240 rubles, the remaining 10% are illiquid and are written off. Thus, the market value of inventories is:

C = 136080 rub.

C justified = 142,128 rub.

2.2.2. Cost estimate finished products carried out at production cost and amounts to 12,600 rubles.

2.2.3. Unfinished production is estimated at actual costs and amounts to 6,112,800 rubles.

2.2.4. Future expenses assessed at the cost of their possible repayment, and amount to 259,500 rubles.

The balance sheet assets of the company being valued include only short-term receivables. To assess accounts receivable, an analysis was carried out. A list of debtors was compiled, the deadline for repayment of the debt was determined, and the possibilities of repaying the debt within the time limits stipulated by the relevant agreements were analyzed. 90% of the amount of receivables was recognized as real receivable, valued at current value and amounted to RUB 5,519,340. 10% of the amount of receivables (RUB 613,260) was recognized as doubtful (unreliable) for collection and written off from the enterprise’s balance sheet.

2.5. Cash are valued at their book value and amount to RUB 2,563,500.

2.6. Valuation of accounts payable .

A study of the structure of short-term debt led to the conclusion that this article should not be adjusted, since payments on these debts are mandatory.

The amount of accounts payable is accepted according to the balance sheet of the enterprise without adjustments and amounts to 11,266,200 rubles.

Adjusting the balance sheet of an enterprise

Assets
Book value	Market price
I . Fixed assets
1.1.Intangible assets
1.2. Fixed assets	9948000	9703217
1.3. Work in progress
1.4. Long-term financial investments
Total IA:	9948000	9703217
II . Current assets
2.1. Inventories and costs	5670000	5662440
2.2. VAT	27000	27000
2.3. Accounts receivable debt	5110500	4599450
2.4. Cash	2563500	2563500
2.5. Short term financial investments
Total IIA	13371000	12852390
Total WB	23319000	22555607
Passive
III. Capital and reserves
3.1. Authorized capital	7500	7500
3.2. Extra capital	12148500	12148500
3.3. Reserve capital
3.4. Social Sphere Fund
3.5. Retained earnings (loss) of previous years	1774500	1011107
3.6. Retained earnings (loss) of the current year
Total IIIП	13930500	131671107
IV. Long-term liabilities
V. Short-term liabilities
5.1. Short term loans
5.2. Short-term accounts payable	9388500	9388500
Total VP	9388500	9388500
Total WB	23319000	22555607

Conclusion: The market value of Vahidas LLC, calculated by the net asset method, is 131,671,107 rubles.

Conclusion

Based on the results of the research, the following conclusions can be drawn: the cost approach to assessing the value of a business is based on an analysis of the enterprise’s balance sheet, which makes it possible to form an objective assessment, and is also the most reliable in the conditions of the unstable Russian economy in comparison with the income and comparative approaches to assessment, which is due to the presence of reliable initial information for calculation, as well as the use of methods traditional for the domestic economy to assess the value of a business, based on an analysis of the value of the enterprise’s property and its debt.

The net asset method used in this course work allows you to evaluate an enterprise in terms of the costs of its creation, provided that the enterprise remains in operation. To determine the market value of the enterprise's equity capital, all assets of the enterprise were valued at market value and the value of the enterprise's liabilities was subtracted from the resulting amount.

Adjustments to balance sheet asset items were carried out in the following main areas: buildings, inventories, accounts receivable.

Buildings were assessed using two approaches: cost-based and income-based (income capitalization method). When assessing buildings using the cost approach, the market value of the land plot was not taken into account, since property rights to the land were not formalized.

To evaluate real estate using the income capitalization method, an analysis of rental rates for premises of a similar type was carried out.

The assessment of the enterprise's inventories of material resources was carried out using the cost approach - based on the price of their acquisition and the market approach - based on current market prices.

Having analyzed the accounts receivable, that part of it was excluded that was doubtful, i.e. unrealistic to receive.

As a result of studying the company’s short-term liabilities, it was concluded that this article should not be adjusted, since payments under it are mandatory.

Thus, the estimated value of CJSC “Vakhidas” is 270,976.07 thousand rubles.

Bibliography

1. Grigoriev V.V. Enterprise valuation: theory and practice. - M.: INFRA - M, 1997.

2. Kovalev A.G. How to evaluate the property of an enterprise. – M.: Finstatinform, 1996.

3. Kovalev V.V. The financial analysis– M.: Finance and Statistics, 1998.

4. Business valuation: Textbook/Edited by Gryaznova A.G. – M.: Finance and Statistics, 1999. – 512 p.

Cost-effective approach, general characteristics approach. Net asset value method. Liquidation value method.

Net Asset Value Method

The cost approach to business valuation considers the value of the enterprise in terms of the costs incurred. This approach is represented by two main methods: the net asset value method and the liquidation value method.

The net asset value estimate is obtained by valuing all of a company's assets minus all of its liabilities. Calculation of the net asset value method includes several stages:

1) the enterprise’s real estate is assessed at a reasonable market value;

2) the reasonable market value of machinery and equipment is determined;

3) intangible assets are identified and assessed;

4) the market value of financial investments is determined;

5) inventories are converted to current value;

6) accounts receivable are assessed;

7) expenses of future periods are estimated;

8) the enterprise’s liabilities are translated into current value;

9) the value of equity capital is determined by subtracting the current value of all liabilities from the reasonable market value of the amount of assets.

To evaluate real estate (land and buildings, structures), it is possible to use three approaches: profitable, comparative (market) and cost-based. Application of the cost approach includes the following stages: the cost of the land plot on which the buildings and structures are located is determined; the replacement cost or replacement cost of the building and structure is assessed as of the actual valuation date; all types of depreciation of buildings and structures are calculated taking into account their physical, functional, technological and economic obsolescence; the residual value of buildings and structures is determined as the difference between the cost of reproduction and total depreciation; the full value of the property is calculated by adding the cost of the land plot to the residual value of buildings and structures.

The cost approach requires a separate assessment of land value.

The cost approach to the valuation of machinery and equipment is based on the principle of substitution, the meaning of which is that if there are several similar objects, one of them, which has the lowest price, is in greatest demand. To determine the cost of restoration or replacement cost, which is the basis of calculations in the cost approach, it is necessary to calculate the costs associated with the creation, acquisition and installation of the object being valued. In the cost approach to the valuation of machinery and equipment, the following main methods can be distinguished: method of calculation based on the price of a homogeneous object; element-by-element calculation method; index evaluation method.

When using the cost approach when valuing intangible assets, the following are used: the creation cost method and the cost gain method.

Determination of the value of goodwill (business reputation) is calculated based on the assessment of excess profits.

The assessment of financial investments is carried out based on their market value as of the date of assessment and is the subject close attention appraiser.

Inventories are valued at current prices, taking into account transportation and warehousing costs. Obsolete inventory is written off.

Deferred expenses are measured at face value if the associated benefit still exists. If there is no benefit, then the amount of future expenses is written off.

When assessing receivables, an analysis is carried out based on the timing of their repayment and identification of overdue debts. Unwritten receivables are valued by discounting future principal and interest payments to their present value.

The cost approach to business valuation considers the value of the enterprise in terms of the costs incurred. The book value of assets and liabilities of an enterprise due to inflation, changes in market conditions, and accounting methods used, as a rule, does not correspond to market value. As a result, the appraiser is faced with the task of adjusting the balance sheet of enterprises. To do this, a reasonable market value of each balance sheet asset is first assessed separately, then it is determined to what extent the balance sheet amount of liabilities corresponds to their market value, and finally, the current value of all its liabilities is subtracted from the basic frame value of the amount of assets. The result shows the estimated value of the enterprise's equity.

Equity is assets - liabilities are basic formula property (cost) approach. This approach is represented by two main methods:

- net asset value method;
- using the liquidation value method.
1. Economic content of the net asset value method. When deciding on the choice of one or another assessment method, it is necessary to determine the conditions for its application.

When to use the net asset value method:

- the controlling stake is assessed;
- the company has significant material assets:
- it is possible to identify and evaluate intangible assets, if any;
- the company is expected to continue to be a going concern (otherwise liquidation value should be applied);
- the company is a holding or investment company;
- the company does not have historical data on profits, or there is no way to reliably estimate its profits: or cash flows;
- a company is a new or newly emerged enterprise;
- the company is heavily dependent on contracts, or there is no constant, predictable clientele;

a significant part of the company's assets are financial assets (for example, marketable securities).

To evaluate real estate (land, buildings and structures), three approaches can be used: income, market and cost.

Technology of application of the income approach.

The income approach to real estate valuation includes two methods:

- income capitalization method;
- discounted cash flow method.

The income capitalization method is used to value real estate that generates relatively stable income. Income from owning real estate can come in the form of current and future income from renting it out, income from a possible increase in the value of real estate when it is sold in the future. The result of this method includes both the cost of the building, structures, and the cost of the land plot. The main stages of the income capitalization method are:

1. Potential gross income is estimated. This is done based on an analysis of rates and tariffs on the market for comparable objects. Potential gross income (GPI) is the income that can be received from real estate at 100% use without taking into account all losses and expenses. PVD depends on the area of the property and the rental rate.
2. Estimated losses from underutilization are estimated. Property and losses during collection of payments. Reducing the income tax by the amount of losses gives the actual gross income. DVD = PVD - losses.
3. The estimated costs of operating the property being assessed are calculated.
4. The projected net operating income is determined by reducing the DVD by the amount of estimated costs.
5. The capitalization ratio is calculated.

Methods for determining capitalization ratio:

- method of cumulative construction;
- method for determining the capitalization ratio taking into account the reimbursement of capital costs;
- related investment method;
- direct capitalization method.

The capitalization rate in real estate valuation consists of two elements:

- rates of return on investments (rates of return on capital);
- norms of return (reimbursement) of capital.

Return of capital refers to the repayment of the amount of the initial investment, and this element of the coefficient applies only to the depreciation element, i.e. losing value of part of the assets.

The rate of return on capital is based on:

1. Risk-free rate, which determines the minimum compensation for invested capital. The yield on government long-term obligations is used as the risk-free rate;
2. Risk premiums. All investments, with the exception of those previously listed, have a higher degree of risk, depending on the characteristics of the type of real estate being valued;
3. Premiums for low liquidity. Liquidity measures how quickly a property can be converted into cash. Real estate is relatively low in liquidity;
4. Awards for investment management. The riskier and more complex the investment, the more competent management it requires. Investment management should not be confused with property management, the costs of which are included in operating expenses.

Method for determining the capitalization ratio taking into account the reimbursement of capital costs.

As noted earlier, in relation to real estate, the capitalization ratio includes the rate of return on capital and the rate of return (reimbursement) of capital.

There are three ways to recoup invested capital:

1. Straight-line return of capital (Ring method);
2. Return of capital based on the replacement fund and the rate of return on investment (Inwood method). It is sometimes called the annuity method;
3. Return of capital, according to the compensation fund and the risk-free interest rate (Hoshold method).

Ring's method. This method is appropriate to use when it is estimated that the income stream will be systematically reduced and the principal amount will be repaid in equal installments. The annual rate of return on capital is calculated by dividing 100% of the asset's value by its remaining useful life, i.e. it represents the reciprocal of service life.

Inwood method. This method is used when it is expected that the enterprise will receive constant, equal income during the forecast period. One part of this income stream will represent a return on investment, and the other will provide reimbursement or return of capital. Moreover, the capital return amount will be invested at the rate of return on investment (capital). Thus, the capitalization ratio for an equal income stream will be equal to the sum of the investment return rate and the recovery fund factor at the same interest rate.

Hoshold method. It is used in cases where the rate of return. The return on the initial investment is so high that it becomes unlikely to reinvest at the same rate. Therefore, reinvested funds are expected to receive income at the risk-free rate. Thus, the capitalization ratio will be equal to the sum of the investment's return rate and the replacement fund factor at the risk-free rate.

Linked investment method or investment group technique.

The overall capitalization ratio is determined as a weighted average:

R cap. = M * R m + (1-m) * R E, (1)

where M is the share of borrowed funds in the cost;

R m - capitalization ratio for borrowed capital;

R e? capitalization ratio for equity.

The capitalization ratio for borrowed capital is called the mortgage constant and is calculated by the formula:

Rm? annual debt service payments on the principal amount of a mortgage loan

The capitalization ratio for equity is determined as follows:

Re? annual DP before taxes (RTSB) is the amount of equity capital.

Direct capitalization method. Based on market data on sales prices and IDI values of comparable properties, the capitalization ratio can be calculated.

This formula is used when the asset is resold at a price equal to the amount initial investment, and therefore there is no need to include a capital recovery premium in the capitalization ratio.

At the last stage of the income capitalization method, the value of real estate is determined by dividing the value of the predicted IDI by the capitalization ratio.

Discounted cash flow method.

This method is used to determine the current value of future income that will be incurred by the use of the property and its possible sale.

Calculation using the discounted cash flow method can be divided into several stages:

1. A forecast is made of the flow of future income during the period of ownership of the property;
2. The value of the property being valued is calculated at the end of the ownership period, i.e. the cost of the proposed sale (reversion), even if in reality no sale is planned;
3. The discount rate for the property being valued on the existing market is derived;
4. The future value of income during the holding period and the projected cost of reversion are reduced to the current value.

Thus, the value of real estate is equal to the present value of the periodic income stream and the present value of the reversion.

Technology of application of the market (comparative) approach

The comparative approach is carried out:

- sales comparison method;
- by the gross rent multiplier method.

Sales comparison method. This method is based on the comparison and analysis of data on the sale of similar properties, usually over the last 3-6 months. The fundamental principle of the comparative sales method is the principle of substitution, which states that if there are several properties on the market, a rational investor will not pay more for a given property than the cost of real estate of similar utility.

The sales comparison method includes several steps:

1. Selection of real estate objects - analogues. For a more objective assessment, an analysis of at least 3-5 comparable sales is required;

Comparison and comparison of the assessed object with analogous objects is carried out according to two components:

- by comparison units (price per 1 hectare, 1 sq. m, 1 lot, etc.);
- by comparison elements;

The comparison elements for real estate are:

- transferred property rights;
- conditions for denouncing the transaction;
- terms of sale;
- time of sale;
- location;
- physical characteristics (dimensions, structural elements, appearance etc.);
2. Evaluating adjustments by element and calculating the adjusted unit of comparison.

Amendments are adjustments that are made to the sale price of an analogue object when bringing its foam-forming characteristics to the characteristics of the object being valued.

The basis for making adjustments is the sales price of the comparable property. If an element of the comparable sale is superior in quality to the same element in the object being valued, then a minus adjustment is made, but if it is inferior, then a plus amendment is made.

Depending on the relation to the price of the unit of comparison, amendments are divided into:

- interest;
- monetary (monetary relative), (monetary absolute).

Percentage adjustments are made by multiplying the strength of the collateral or unit of comparison by the amount of the percentage adjustment. The present value of the analogue, taking into account the percentage adjustment, is as follows:

V a = (V unit * K unit) * P pr. = (V unit * P pr.) * K unit, (2)

where V a is the present value of the entire analogue, taking into account the amendment;

V a is the cost of a comparison unit;

K units - number of comparison units;

P pr. - the value of the percentage adjustment.

Monetary adjustments. Absolute monetary adjustments are applied to a certain amount of the cost of the entire object, while relative ones are applied to only one unit of comparison.

The present value of the analogue, taking into account the absolute monetary adjustment, is as follows:

V a = (V units * K units) + P ad., (3)

where P ad is the value of the absolute monetary adjustment, and the remaining notations correspond to the notations in the previous formula.

Taking into account the relative monetary adjustment, the present value of the analogue is calculated as follows:

V unit = (V unit + K unit) + (P od * . K ed) = (V unit + P od) * K unit, (4)

where P d is the value of the relative monetary adjustment, and the remaining designations are identical to the designations of the previous formula.

3. Calculation of the cost of the entire property by multiplying the cost of the comparison unit by the area of the property.

Gross rent multiplier method

The gross rental multiplier is the ratio of the sales price to either potential or actual gross income. Stages of the method:

1. Market rental income from the property being assessed is determined;
2. The gross income multiplier is calculated based on recent market transactions. Coordination of multipliers for comparable real estate objects is carried out by averaging the obtained values;
3. The probable sale price of the valued object is determined by multiplying the market rental income from the valued object by the gross rental multiplier:

V=D r * VRM = D r * S an PVD a, (5)

where V is the probable selling price of the property being valued:

D r - rental income of the property being valued

GRM - gross rent multiplier;

С an - selling price of the comparable analogue;

PVD a - potential gross income of the analogue.

Technology of application of the rental approach. This approach includes several steps:

1. The value of the land plot on which the building or structure is located is determined;
2. The replacement cost or replacement cost is assessed as of the actual valuation date.

Replacement cost refers to the cost of construction, in current prices as of the actual date of valuation, of an exact copy of the valued object from the same building materials, subject to the same construction standards, according to the same project as the object being valued.

Replacement cost means the cost of construction at current prices on the actual date of valuation of an object with a utility equal to the utility of the object being valued, but using new materials in accordance with current standards, design, layout. Thus, in one case it means the reproduction of an exact copy of the object of evaluation, and in the other - its replacement with a suitable substitute.

The estimated total construction cost includes:

- direct costs (cost of materials, depreciation deductions, wages of construction workers, etc.);
- indirect costs (costs of paying for professional services of architects, design engineers, accountants and lawyers for consulting services to pay for licenses, etc.);
- business income.

Business income is the amount that an investor expects to receive in excess of the costs of implementing the project, taking into account the risk and return of comparable objects. Taking into account global calculation practices, business income is determined at 15% of construction costs.

Construction cost + Business income = Total construction cost.

3. All types of wear and tear of buildings and structures are calculated, taking into account their physical, functional, technical and economic aging.

Physical aging is the loss of property value caused by wear and tear, deterioration, maintenance costs and other physical factors that detract from the life and usefulness of the property.

Functional obsolescence is the loss of property value associated with its inability to adequately perform the functions for which it was intended. Functional obsolescence is an internal property of property and is associated with factors such as structural and other deficiencies inherent in the creation of property, excess operating costs, etc.

Economic obsolescence is a loss in the value of an asset caused by external factors, such as economic changes, decreased demand for products, increased competition, etc.

4. The residual value of buildings and structures is determined as the difference between the cost of reproduction (cost of restoration or replacement cost) and total depreciation;
5. The full cost of the property is calculated by adding the cost of the land plot to the residual value of the building and structures.

at the rate: "Business Valuation"

on this topic: « BUSINESS ASSESSMENT USING A COST APPROACH. METHOD FOR CALCULATING THE VALUE OF NET ASSETS"

Introduction

This course work uses a cost approach to valuation, the relevance of which is primarily due to the availability, as a rule, of reliable initial information for calculation, as well as the use of methods traditional for the domestic economy for assessing the value of a business, based on an analysis of the value of the enterprise’s property and his debts.

Lack of necessary and sufficient market information on capitalization and income discounting rates. Limits the use of income approach methods (capitalization method and discounted cash flow method)

Main target of this course work – evaluate the enterprise by determining its market value for the current period.

To achieve this goal, the following are defined: tasks :

· Study the theoretical aspects of business valuation using income, property and market approaches.

· Identify the positive and negative aspects of using the property approach to business valuation.

· Identify the features of applying this approach both in modern market conditions and in the enterprise.

Object Research in this course work is the use of a cost approach to business valuation.

Subject The study is the application of a method for calculating the value of net assets in an enterprise.

Chapter 1. Theoretical aspects of the property approach to business valuation

1.1. The essence and scope of application of the property approach

Equity = Assets - Liabilities.

The basic formula in the property (cost) approach is: Equity = Assets - Liabilities.

This approach is represented by two main methods:

net asset method;

Scope of application

The cost-based valuation approach is the most appropriate:

When assessing government facilities;

When calculating the value of property that is intended for special use (without generating income), these are schools, hospitals, post office buildings, cultural facilities, train stations, etc.;

When revaluing fixed assets for accounting purposes;

liquidation value method.

When selling property at public auction.

1.2. Advantages and disadvantages of the property approach

Advantages:

· based on an assessment of existing assets, i.e. has an objective basis;

· when valuing individual components of assets, all three approaches to valuation can be used: income, cost and market.

Flaws:

· static, i.e. does not take into account business development prospects;

· does not take into account the main financial and economic indicators of the activity of the enterprise being assessed.

1.3. The main stages of calculating the value of a business using the net asset method

Calculation of the net asset value method includes several stages:

1. The real estate of the enterprise is assessed at a reasonable market value.

2. The reasonable market value of machinery and equipment is determined.

3. Intangible assets are identified and assessed.

4. The market value of financial investments, both long-term and short-term, is determined.

5. Inventories are converted to current value.

6. Accounts receivable are assessed.

7. Future expenses are estimated.

8. The enterprise's liabilities are translated into current value.

When assessed for tax and insurance purposes during the judicial division of property;

1.4 Valuation of the enterprise’s real estate at a reasonable market value.

9. The value of equity capital is determined by subtracting the current value of all liabilities from the reasonable market value of the amount of assets.

1.4.1. Application of the income approach

The income approach to real estate valuation includes two methods:

Income capitalization method;

Discounted cash flow method.

The value of real estate is calculated using the formula:

C = NAV / Capitalization rate,

Where C is the current value of the property;

NOR – net operating income;

SC – capitalization rate.

PVD = P * Ca, Where

P - area for rent,

The valuation of an enterprise's real estate can be given using three approaches: income, comparative (market) and cost.

Ca - rental rate per 1 square meter.

DVD = PVD - Losses .