Three methods are used to value an enterprise in its sale, merger or liquidation. Each of them has its own characteristics and scope.

The most popular is the income approach, all the nuances of which will be discussed further.

What is it?

The essence of the approach is business valuation based on the determination of the company's expected income. This method is the main one and is most often used to establish the value of enterprises.

The bottom line is that the size of a 100% stake is calculated as the estimated value of future benefits, determined by the rate of return. This takes into account the degree of investment risk.

This fact allows us to recognize the profitable method as the most rational, as well as to evaluate with its help a business of any industry and size.

The appraiser, during the analysis, studies the market, calculates all possible benefits in order to obtain the real value of the business. The approach involves the use of establishing the value of all future profits of the investor, which he can receive after the acquisition of the organization. Determining the price of the company, the specialist must:

• set a forecast period for future profits;
• choose the most optimal calculation method;
• determine the future price of the enterprise at the end of the forecast period, that is, the terminal cost.

The difference from other approaches lies in the assumption that a future investor or buyer cannot pay more for an organization than it will bring him income in the future.

The value of the company, determined in this way, is influenced by several factors. These include:

• investment risks - they depend on the territorial location, scope of activity, features of the development of the company;
• the amount of income an asset can generate over its useful life.

The approach has its advantages and disadvantages associated with the nuances of application. The positive aspects of use include:

• the influence of the market is taken into account, since the discount rate is involved in the calculations;
• the enterprise is presented to the investor or buyer as a source of income, not costs.

The negative aspects include:

• subjectivity of the established discount rate;
• the difficulty of accurately predicting future earnings.

Income method can not always be applied. Sometimes the appraiser comes to the conclusion that this option is irrational and does not show the real value of the enterprise. In this case, you need to use one of the other two approaches.

You can learn more about how companies are valued in the following video:

Applied methods

Business valuation using this approach is carried out by one of two methods. Each has its own characteristics and structure of calculations.

Discount method

This method involves the analysis of all the income of the enterprise and development strategies for a certain period. The result of the calculations is the reduction of future income to the current value.

The assessment is carried out in several stages. Calculating the value of an enterprise is quite time-consuming and complicated, but this method is considered the best. Read more about it in.

Capitalization Method

It is used if the company's income is stable and their growth rate is predictable. The method consists in establishing the amount of annual income, determining the appropriate capitalization rate. Based on these data, the market value of the company's capital is calculated.

The main idea can be expressed by the formula:

C=N/K, where:

• N - net profit;
• K is the established capitalization ratio.

The coefficient can be determined by the formula:

K = r - g, where

• r - discount rate;
• g - growth rate of cash flow.

Valuation by the capitalization method is carried out in several stages:

1. The financial statements of the enterprise are analyzed.
2. The amount to be capitalized is selected. It can be profit both before and after taxation.
3. The capitalization rate is calculated.
4. The preliminary cost of the enterprise is established.
5. An adjustment is being made. This takes into account the lack of liquidity, the nature of the estimated share.

Direct capitalization is used in some cases:

• if the appraiser has all the necessary data to assess the company's profit;
• The entity's real estate income is stable, or future revenues are expected to be approximately equal to current ones, for example, the entity's buildings are leased to another entity.

The method has its advantages and disadvantages. The advantages include the following points:

• Ease of calculation. A simple formula greatly facilitates the necessary calculations.
• The method reflects the market situation. This nuance is associated with the peculiarities of the evaluation method. The procedure requires a detailed analysis of a large number of market transactions, a comparison of income and the value of invested funds.

At the same time, the technique also has limitations:

• The method is not intended for calculating the value of an enterprise in a crisis market. The disadvantage of its application is the assumption that the income of the organization will be uniform. The instability of the economic situation in the industry, country or the world as a whole directly affects the level of future business profits.
• Using a lot of information. If the appraiser cannot obtain complete and reliable information about the transactions carried out in the market, he will have to take a different approach.
• The method can be used only with a stable business. If the firm does not yet have a uniform level of income, the use of capitalization is impossible, since the main requirement that ensures the correctness of the forecast is not satisfied. Also, the method is not suitable for enterprises that are currently in the process of restructuring or anti-crisis management.

When calculating, the evaluator may encounter two problems:

• determining the amount of the company's net income - for this you need to choose the right forecasting period;
• choice of rate - you need to take into account the amount of net profit.

Using the income approach is a fairly convenient way to calculate the market value of the capital of enterprises whose profits are stable from year to year.

In this example, to evaluate the business of an enterprise from the perspective of an income approach, we use profit capitalization method.

The profit capitalization method is one of the options for a profitable approach to assessing an enterprise as a going concern. Like other variants of the income approach, it is based on the basic principle that the value of ownership of an enterprise is equal to the present value of the future income that the enterprise will generate.

The essence of this method is expressed by the formula: V=I/R,

where: V- the value of the enterprise (business); I- the amount of net profit; R- capitalization rate.

The method of capitalization of profits is most suitable for situations where it is expected that the company will receive approximately the same amount of profit over a long period of time (or the rate of profit growth will be constant).

The appraised enterprise - OOO "XXX" - has been operating and developing as a business since 2000. The enterprise is engaged in retail trade in men's and women's clothing under the trademark "XXX", which is carried out in its company store located at: Moscow, st. ХХХХХ, d. 0. As of the valuation date, LLC “XXX” has no other stores, branches or branches.

An analysis of the activity of XXX LLC as an operating business showed that as of the date of assessment, the enterprise had already passed the stage of formation and is now in the stage of stable operation, when the income and expenses of the enterprise can be predicted with a sufficient degree of probability. Based on this, the profit capitalization method is used to evaluate the business of this enterprise.

The practical application of the profit capitalization method in business valuation consists of the following steps:

1. Analysis of the financial statements of the enterprise. 2. Choosing the amount of profit to be capitalized. 3. Calculation of the capitalization rate. 4. Determination of the preliminary value of the cost. 5. Adjustment for non-performing assets. 6. Adjustment for the controlling or non-controlling nature of the estimated interest.

Analysis of the financial statements of the enterprise is an important step in the evaluation. At this stage, retrospective and current information on financial and economic activities and their results are analyzed. In real business valuation reports, the analysis of financial statements occupies a separate section. In this model example, we will restrict ourselves to the conclusions that were made based on the results of the analysis.

Conclusions based on the results of the analysis of the financial statements of XXX LLC:

1. The structure of the enterprise's assets is well balanced, the share of highly liquid assets approximately corresponds to the share of low liquid assets, while the share of hard-to-sell assets is quite small - 5% of total assets.

2. The main source of financing of the enterprise is its own funds (78% of all funds of the enterprise), while short-term and medium-term debts are 5% and 17%, respectively, in the absence of long-term accounts payable.

3. The company's liquidity indicators (coverage ratio, quick liquidity ratio, absolute liquidity ratio) confidently exceed the normative ones, which indicates a high degree of readiness of the enterprise to service its short-term and medium-term debts.

4. The low concentration ratio of attracted capital is a consequence of the predominance of own funds in the overall structure of the enterprise's liabilities and indicates the high liquidity of the enterprise in the long term.

5. The average repayment period for receivables is 43 days, which practically coincides with the average standard value (45 days).

6. The inventory turnover indicator at the enterprise (9.62) greatly exceeds the conditional normative value (3.5), which most likely indicates the absence of obsolete stocks and the high speed of their turnover, but perhaps this is due to a lack of stocks at the enterprise.

7. The profitability indicators of the enterprise, according to the Appraiser, are satisfactory and generally coincide with the average similar indicators for non-food retailers of similar size.

8. The company's net profit shows stable growth over the past five years at a rate of 15-20% per year, sales revenue over this period grew at about the same pace - 14-22% per year. These facts make it possible to make an assumption that the enterprise's business is stable and predictable in terms of financial results.

Choosing the amount of profit to be capitalized. This stage actually involves the choice of the period of production activity, the results of which will be capitalized. Usually choose one of the following options:

1. Profit of the last reporting year. 2. Profit of the first forecast year. 3. Average profit for the last few reporting years (3-5 years).

In this case, the profit of the last reporting year is used for capitalization.

Calculation of the capitalization rate. The capitalization rate for business valuation is determined by subtracting the expected average annual earnings growth rate from the discount rate. That is, to determine the capitalization rate, you must first calculate the appropriate discount rate and make a reasonable forecast regarding the growth rate of the company's profit.

Mathematically, a discount rate is an interest rate used to convert future earnings into a single present value. In an economic sense, the discount rate is the rate of return required by investors on capital invested in investment objects comparable in terms of risk.

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

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

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

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

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

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

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

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

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

Calculation of the company's value using the income approach

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

1) forecast of future income of the enterprise;

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

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

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

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

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

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

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

Methodcapitalizationincome(Single-Period Capitalization Method, SPCM)

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

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

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

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

where DP - cash flow;

P is clean - net profit.

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

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

Capitalization rate =D– T r,

where D- discount rate;

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

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

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

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

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

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

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

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

The discounted cash flow method is more flexible becausecan be used to evaluate any operating enterprise usingitemized forecast of future cash flows. It is of no small importance for the management and owners of the company to understand the impact of various management decisions on its market value, that is, it can be used in the process of cost management based on the obtained detailed business value model and see its susceptibility to the identified internal and external factors. This allows you to comprehend the activities of the enterprise at any stage of the life cycle in the future. And most importantly, this method is the most attractive for investors and meets their interests, since it is based on forecasts of future market development and inflationary processes. Although there is some difficulty in this, sincein an unstable crisis economy from predicting the flow of income for several years ahead is quite difficult.

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

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

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

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

Table 1. Cash flow calculation for invested capital
Indicator	Impact on bottom line cash flow (+/-)
Net profit
Accrued depreciation
Decrease in own working capital
Increasing own working capital
Sale of assets
Capital investments
Cash flow for invested capital

Table 2. Cash flow calculation for equity
Indicator	Impact on bottom line cash flow (+/-)
Net profit
Accrued depreciation
Decrease in own working capital
Increasing own working capital
Sale of assets
Capital investments
Increase in long-term debt
Reducing long-term debt
Cash flow for equity

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

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

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

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

Let's consider these methods in more detail.

Methodweighted average cost of capital ( WACC)

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

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

where C zk - the cost of borrowed capital;

N prib - income tax rate;

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

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

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

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

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

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

Methodestimatescapitalassets (Capital Asset Pricing Model, CAPM)

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

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

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

β - special coefficient;

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

P 1 - premium for small enterprises;

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

R- country risk.

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

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

Modified capital asset valuation model ( MCAPM)

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

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

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

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

D r - profitability of the market as a whole;

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

Cumulative Method

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

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

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

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

Derivation of the final company's market value

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

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

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

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

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

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

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

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

Conclusion

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

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

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

The financial strategy of any enterprise is determined by the strategic goals facing the enterprise, as well as the goals of the financial management itself. As you know, the main goal of financial management is to ensure the growth of the welfare of owners, to maximize the market value of the company. Consequently, financial strategy companies - this is a master plan of action for the timely provision of the enterprise with financial resources (cash) and for their effective use in order to capitalize the company.

The development of a financial strategy for an enterprise consists of several stages. From the very beginning, it is necessary to determine for how long a financial strategy is being formed. Depending on the term of the strategy, both the goals of financial activity and the degree of development of financial plans depend.

A long-term financial strategy describes the principles of the formation and use of income, the need for financial resources and the sources of their formation. A short-term financial strategy is developed within the framework of a long-term financial strategy, details it and describes the current management of financial resources. Long-term and medium-term financial strategic plans for 3-5 years are formed in an enlarged form, and short-term financial plans for the year are worked out with a high degree of detail.

The next step in developing a financial strategy is to determine the goals of financial activities. The financial strategy is functional in relation to the corporate strategy of the company, therefore, it should be included in the structure of the overall strategic goals of the company. As you know, the main financial goal is to maximize market value while minimizing risk. Such a goal can be defined both in absolute and relative terms. The main goal is achieved if the company has enough financial resources, optimal return on equity, a balanced structure of equity and borrowed capital. The main financial goal is broken down into financial sub-goals, for example:

• Profit
• The amount of equity capital
• Return on equity
• Asset structure
• Financial risks

Each goal should be clearly formulated and expressed in specific indicators, for example:

• Profitability of sales
• Financial leverage (ratio of own and borrowed capital)
• Solvency level
• Liquidity level

Developing a financial strategy involves not only developing goals, but also developing an action plan to achieve those goals. The management of the company must know how the current situation relates to the strategic goals of the company. It is necessary to regularly monitor the achievement of strategic goals. To control the implementation of the strategy, strategic goals are broken down into specific strategic tasks that need to be solved in a certain period of time. Control over the achievement of strategic goals is carried out by solving tactical problems. The established financial goals are grouped by directions, forming the financial policy of the enterprise.

The presence of a financial strategy makes the company more manageable for management and transparent for owners.

Seminar "Budgeting and financial planning"

Related articles:

financial policy

strategic goals. Goal Tree

Balanced Scorecard

• About the business school. Courses and seminars on finance for economists, managers

11.03.2019

Seminar “Cost Management. Cost calculation” for employees of the economic department of the State Scientific Center of the Russian Federation FSUE “NAMI”.

07.02.2019

Alpha Business School held a corporate seminar "Receivables Management" for employees of the distribution company "Lit Trading".

16.10.2018

Alla Uvarova, director of the Alpha School of Business, told the Community of Managers of the Executive.ru portal about how the demand for corporate distance learning is changing and about trends in business education.

28.06.2018

A seminar “Planning and Budgeting: Best Practices at Fuel and Energy Complex Enterprises” was held in Moscow for representatives of the financial and economic services of the Gazprom Corporation.

04.04.2018

Ryazan hosted a seminar on financial analysis for economists from the Ryazan Design Bureau "Globus".