Comparative analysis of approaches to business valuation. A comparative approach to estimating the value of an enterprise and shares. Approaches to evaluating an existing business

Introduction

Increasing the value of an enterprise is one of the indicators of income growth of its owners. Therefore, periodic assessment of business value can be used to analyze the effectiveness of enterprise management. Traditional methods of financial analysis are based on the calculation of financial ratios and only on data from the financial statements of the enterprise. However, along with internal information, in the process of assessing the value of an enterprise, it is necessary to analyze data characterizing the operating conditions of the enterprise in the region, industry and economy as a whole.

The current stage of development of market relations requires the active formation of institutional foundations and assessment infrastructure. This concept includes the creation of the necessary legislative framework, the development of domestic assessment standards, the development of a network of appraisal firms, and the creation of training centers for the training and retraining of specialists. Business valuation is based on the use of three approaches: cost, income and comparative. Each approach involves the use of special techniques and methods, based either on past achievements, or on the present performance of the company, or on expected future income.

This paper reveals the main provisions of the comparative approach. The theoretical basis of the comparative approach, which proves the possibility of its application and the objectivity of the resulting value of the enterprise, are the following provisions. Assessing the value of a business based on a comparative approach involves using actual market prices for similar enterprises (shares) as a reference point.

General characteristics of the comparative approach

The comparative approach assumes that the value of a firm's equity is determined by how much it can be sold for in a sufficiently mature market. In other words, the most likely price for the value of the business being valued may be the actual sale price of a similar company recorded by the market.

The theoretical basis of the comparative approach, which proves the possibility of its application, as well as the objectivity of the resulting value, are the following basic provisions.

Firstly, the appraiser uses as a reference the prices actually formed by the market for similar enterprises (shares). In the presence of a developed financial market, the actual purchase and sale price of the enterprise as a whole or one share most integrally takes into account numerous factors influencing the value of the enterprise's equity capital. Such factors include the ratio of supply and demand for a given type of business, the level of risk, prospects for industry development, specific features of the enterprise, etc. This ultimately makes the job of the Appraiser easier as he trusts the market.

Secondly, the comparative approach is based on the principle of alternative investments. An investor investing in stocks buys, first of all, future income. The production, technological and other features of a particular business are of interest to the investor only from the perspective of the prospects for generating income. The desire to obtain maximum income on investments placed with adequate risk and free placement of capital ensures the equalization of market prices.

Thirdly, the price of an enterprise reflects its production and financial capabilities, market position, and development prospects. Consequently, in similar enterprises the relationship between price and the most important financial parameters, such as profit, dividend payments, sales volume, and book value of equity capital, must be the same. A distinctive feature of these financial parameters is their decisive role in generating the income received by the investor.

Advantages of the comparative approach:

If there is sufficient information about analogues, accurate results are obtained;

The approach reflects the market, taking into account the real relationship between supply and demand for such objects, since it is based on a comparison of the company being valued with analogues that have already been recently purchased or whose shares are freely traded on financial markets;

The price of an enterprise reflects the results of its production and economic activities.

Disadvantages of the comparative approach:

Based only on retrospective information, practically does not take into account the development prospects of the enterprise;

It is difficult, and sometimes impossible, to collect financial information about analogues (due to the insufficient development of the stock market, many joint-stock companies do not give their quotes to the stock market, and closed joint-stock companies, of which there are a lot, do not disclose financial information);

It is necessary to make significant adjustments due to the strong differences between enterprises (equipment, assortment, development strategies, quality of management, etc. differ).

The comparative approach is implemented through three methods.

1. Capital market method based on the real prices of shares of public enterprises prevailing on the stock market. The basis for comparison is the price per unit share of a joint stock company. Used to value non-controlling interest.

2. Transaction method- for comparison, data is taken on sales of controlling stakes in companies or on sales of entire enterprises, for example, during acquisitions or mergers. The method is used when purchasing a controlling stake in a public company, as well as to evaluate closed companies that operate in the same market segment as open companies and have similar financial indicators. Includes analysis of multiples.

3. Industry coefficient method- involves the use of ratios or indicators based on sales data of companies by industry and reflecting their specific specifics. Industry coefficients are calculated by special research institutes on the basis of long-term statistical observations of the selling price of enterprises and their most important production and financial characteristics.

Characteristics of price multipliers

Determining the market value of an enterprise's equity capital using the comparative method is based on the use of price multipliers. The price multiplier is a coefficient showing the relationship between the market price of an enterprise or share and the financial base. The financial base of the estimated multiplier is, in fact, a meter that reflects the financial results of the enterprise, which include not only profit, but also cash flow, dividend payments, sales revenue and some others.

a) determine the share price for all companies selected as analogues - this will give us the value of the numerator in the formula;

b) calculate the financial base (profit, sales revenue, net asset value, etc.) either for a certain period of time or as of the valuation date - this will give us the denominator value.

For evaluation, several multipliers are calculated using the formula:

where M is the estimated multiplier;

P is the selling price of a similar enterprise;

FB is a financial indicator of an enterprise similar to the object of assessment.

The financial base of the estimated multiplier is, in fact, a meter that reflects the financial results of the enterprise, which include not only profit, but also cash flow, dividend payments, sales revenue and some others.

To calculate the multiplier you need:

Determine the share price for all companies selected as analogues - this will give the value of the numerator in the formula;

Calculate the financial base (profit, sales proceeds, net asset value, etc.) either for a certain period or as of the valuation date; this will give the value of the denominator.

The stock price is taken as of the last date preceding the valuation date, or it represents the average value between the maximum and minimum price values for the last month. The financial base should be an indicator of financial results either for the last reporting year, or for the last 12 months, or the average value for several years preceding the valuation date.

In business valuation, four groups of multipliers are usually used:

1) price/earnings, price/cash flow;

2) price/dividends;

3) price/revenue from sales;

4) price/value of assets.

Depending on the specific situation, a judgment about the value of an enterprise can be based on any of the multipliers, or any combination of them. To do this, for each analogue enterprise, several multipliers are calculated, risks and financial indicators are analyzed, after which a multiplier is selected that best matches the available financial information about the enterprise being valued.

Price/earnings multiple or price/cash flow multiple used subject to the following rules:

1) the income base (profit or cash flow) can be determined in various ways: before and after taking into account depreciation, interest payments, taxes, dividends. The main requirement is compliance with the selected multiplier of the analogue enterprise;

2) the choice of the multiplier depends not only on the financial information received, but also on the structure of the enterprises’ assets: the price/cash flow multiplier is more appropriate to use to evaluate enterprises that own real estate, the book value of which is decreasing, although the market price may increase. This is because when calculating cash flow, depreciation charges are added to net income. If the company's assets are dominated by rapidly aging equipment, a more appropriate basis is net profit;

3) since the business valuation is carried out on a specific date, the multipliers of analogous enterprises should be calculated based on the materials of reports as close as possible to the valuation date;

4) the income base is determined on the basis of retrospective data for a number of years using the simple average, weighted average or trend line method;

5) the price/earnings multiplier can be calculated both for the enterprise as a whole and per share;

6) the use of a large number of similar enterprises can lead to a spread in the value of the multiplier.

Price/dividend multiplier can be calculated on the basis of actual dividends paid or on the basis of potential dividend payments. Potential dividend payments represent a typical percentage of net income for similar companies. This multiplier is rarely used due to the possibility of variation in the order of payment of dividends among companies.

Price/revenue multiplier (price/physical production volume) usually used in combination with other multipliers, but it is most advisable to use it when assessing in the service sector and when analyzing enterprises with different tax conditions. This multiplier is a modified version of profit capitalization, since it is assumed that in a similar business the level of profitability products are almost the same.

Price/asset value multiplier It is advisable to use it when evaluating holding companies, or in cases where it is necessary to sell a significant part of the assets in a short period of time. The calculation of the asset price/value multiplier is carried out in two stages:

1) determining the value of net assets (expensive and labor-intensive);

2) determining the relationship between the value of shares and the value of assets.

3. Formation of the final cost value

The process of forming the final cost consists of three main stages:

Selecting the multiplier value;

Weighing intermediate results;

Making final adjustments.

The choice of the multiplier value is the most difficult stage, requiring particularly careful justification, which is subsequently recorded in the report. Since there are no identical companies, the range of values of the same multiplier for similar companies can be quite wide. The analyst cuts off extreme values and calculates the average value of the multiplier for a group of analogues. Then financial analysis is carried out, and the analyst, to select the value of a specific multiplier, uses financial ratios and indicators that are most closely related to this multiplier. The position (rank) of the company being evaluated in the general list is determined by the value of the financial ratio. The results obtained are superimposed on the multiplier series and a value is determined quite accurately that can be used to calculate the value of the company being valued.

The comparative approach allows analytics to use the maximum number of all possible multiplier options; therefore, the same number of cost options will be obtained during the calculation process. If an analyst offers a simple average of all obtained values as a final value, this will mean that he trusts all multipliers equally. The most correct method for determining the final value is the weighing method. The appraiser, depending on the specific conditions, goals and object of assessment, the degree of confidence in this or that information, gives each multiplier its own weight; based on the weighing, a final value is obtained, which can be taken as the basis for subsequent adjustments.

The final value obtained as a result of the application of multipliers must be adjusted depending on specific circumstances, the most typical being the following amendments. A portfolio discount is provided if there is an unattractive nature of asset diversification for the buyer. When determining the final cost, the analyst must take into account the existing non-production assets. If the process of financial analysis reveals either an insufficiency of own working capital or an emergency need for capital investments, the resulting value must be subtracted. It is possible to apply a discount when assessing a controlling stake for low liquidity. In some cases, an adjustment is made in the form of a premium for the controls provided to the investor. Thus, the comparative approach, despite the sufficient complexity of calculations and analysis, is an integral method of determining a reasonable market value. The results obtained in this way have a good objective basis, the level of which depends on the possibility of attracting a wide range of analogue companies. Consequently, the development of valuation services will help expand the scope of use of the comparative approach.

Conclusion

For the normal functioning of society, it is necessary to have efficiently operating enterprises. They are engaged in the production and sale of products, provision of services and performance of work, satisfying the needs of society. In the context of ongoing transformations in the economy, enterprises and their managers have to solve a number of new problems, taking into account both economic and social factors.

The comparative approach provides the most accurate results if there is an active market for similar properties. An analogue of an object of evaluation is another object that is similar in basic economic, material, technical and other characteristics, the price of which (the value of shares) is known from a transaction that took place under similar conditions. The accuracy of the estimate depends on the quality of the data collected, including physical characteristics, time of sale, location, terms of sale and financing.

Bibliography

Bayandin E., Shakhverdova A., Valuation and management of company value, 2003

Krasovsky V.M., O.V. Shepel, Features of the application of comparative approach methods in business valuation. 2004

Fedotova M.A. Gryaznovoy A.G., Business assessment. 2000.

Shcherbakov V.A., Shcherbakova N.A., Estimation of the value of an enterprise (business). 2006

The theoretical basis of the comparative approach, which proves the possibility of its application, as well as the objectivity of the resulting value, are the following basic provisions.

Firstly, the Appraiser uses actual market prices for similar enterprises (shares) as a guideline. In the presence of a developed financial market, the actual purchase and sale price of the enterprise as a whole or one share most integrally takes into account numerous factors influencing the value of the enterprise's equity capital. Such factors include the ratio of supply and demand for a given type of business, the level of risk, prospects for industry development, specific features of the enterprise, etc. This ultimately makes the job of the Appraiser easier as he trusts the market.

Depending on the goals, object and specific conditions of assessment, the comparative approach involves the use of three main methods.

1. Analogue company method.
2. Transaction method.
3. Method of industry coefficients.

The peer company method or capital market method is based on the use of prices generated by the public stock market. Thus, the basis for comparison is the price per unit share of open joint stock companies. Therefore, in its pure form, this method is used to value a minority stake.

The transaction method or sales method is focused on the acquisition prices of the enterprise as a whole or a controlling stake. This determines the most optimal scope of application of this method - the assessment of an enterprise or a controlling stake.

The method of industry coefficients or the method of industry ratios is based on the use of recommended relationships between price and certain financial parameters. Industry coefficients are calculated on the basis of long-term statistical observations by special research institutes of the selling price of an enterprise and its most important production and financial characteristics. As a result of the generalization, fairly simple formulas for determining the value of the enterprise being valued were developed.

The price of a retail trade enterprise is formed as follows: 0.75 - 1.5 of the net annual income is increased by the cost of equipment and inventory owned by the enterprise being valued.

The essence of the comparative approach in determining the value of an enterprise is as follows. An enterprise similar to the one being valued that was recently sold is selected. Then the relationship between the sales price and any financial indicator for a similar enterprise is calculated. This ratio is called the multiplier. By multiplying the multiplier value by the same basic financial indicator of the company being valued, we obtain its value.

The comparative approach to business valuation is in many ways similar to the income capitalization method. In both cases, the appraiser determines the company's value based on the campaign's income. The main difference lies in the way the amount of income is converted into the value of the company. The capitalization method involves dividing income by a capitalization ratio based on general market data. The comparative approach operates on market price information in comparison with achieved income. However, in this case, income is multiplied by the ratio.

The process of assessing an enterprise using peer company and transaction methods includes the following main stages.

Stage I. Gathering the necessary information.

Stage II. Comparison of a list of similar enterprises.

Stage III. The financial analysis.

Stage IV. Calculation of valuation multipliers.

V stage. Selecting the multiplier value.

Stage VI. Determination of the final cost.

VII stage. Making final adjustments.

ABSTRACT

COMPARATIVE APPROACH TO ASSESSING THE VALUE OF A BUSINESS (ENTERPRISE)

A feature of the comparative approach to property valuation is the orientation of the final value, on the one hand, to market prices for the purchase and sale of shares owned by similar companies; on the other hand, on the actually achieved financial results.

General characteristics of the comparative approach

The comparative approach assumes that the value of a firm's equity is determined by the amount for which it can be sold in the presence of a sufficiently mature market. In other words, the most likely price for the value of the business being valued may be the actual sale price of a similar company recorded by the market.

The theoretical basis of the comparative approach, which proves the possibility of its application, as well as the objectivity of the resulting value, are the following basic provisions.

Firstly, The appraiser uses as a guide the prices actually formed by the market for similar enterprises or their shares. Takes into account numerous factors influencing the value of the enterprise's equity capital. Such factors include the ratio of supply and demand for a given type of business, the level of risk, prospects for industry development, specific features of the enterprise, and much more.

Secondly, The comparative approach is based on the principle of alternative investments. An investor investing in stocks buys, first of all, future income. The production, technological and other features of a particular business are of interest to the investor only from the perspective of the prospects for generating income. The desire to obtain the maximum return on invested capital with an adequate level of risk and free placement of investments ensures the equalization of market prices.

IN- third, the price of an enterprise reflects its production and financial capabilities, market position, and development prospects. Consequently, in similar enterprises the relationship between price and the most important financial parameters, such as profit, dividend payments, sales volume, and book value of equity capital, must be the same. A distinctive feature of these financial parameters is their decisive role in generating the income received by the investor.

The comparative approach has a number of advantages and disadvantages that the professional appraiser must take into account. The main advantage of the comparative approach is that the appraiser focuses on the actual purchase and sale prices of similar enterprises. In this case, the price is determined by the market, because the appraiser is limited only to adjustments that ensure the comparability of the analogue with the object being valued. When using other approaches, the appraiser determines the value of the enterprise based on the calculations made.

The comparative approach is based on retroinformation and, therefore, reflects the results of production and financial activities actually achieved by the enterprise.

Another advantage of the comparative approach is a real reflection of supply and demand for a given investment object, since the price of the actual transaction most integrally takes into account the situation on the market.

However, the comparative approach has a number of significant drawbacks that limit its use in valuation practice.

Firstly, the basis for calculation is the financial results achieved in the past. Consequently, the method ignores the prospects for the development of the enterprise in the future.

Secondly, a comparative approach is possible only if the most comprehensive financial information is available not only for the company being valued, but also for a large number of similar companies selected by the appraiser as analogues. Obtaining additional information from analogue enterprises is a rather complex and expensive process.

Thirdly, the appraiser must make complex adjustments, amendments to the final value and intermediate calculations that require serious justification. This is due to the fact that in practice there are no absolutely identical enterprises. Therefore, the appraiser is obliged to identify these differences and determine ways to level them out in the process of determining the final value. The possibility of applying the comparative approach primarily depends on the presence of an active financial market, since the approach involves the use of data on actual transactions. The second condition is the openness of the market or the availability of financial information required by the appraiser. The third necessary condition is the presence of special services that accumulate price and financial information. The formation of an appropriate data bank will facilitate the work of the appraiser, since the comparative approach is quite labor-intensive and expensive.

The comparative approach involves the use of three main methods, the choice of which depends on the goals, object and specific conditions of the assessment.

1. Analogue company method.

2. Transaction method.

3. Method of industry coefficients.

Let's consider the content, optimal scope and necessary conditions for using each method

Company method- analogue, or capital market method, based on the use of prices generated by the open stock market.

The basis for comparison is the price of one share of open joint stock companies. Therefore, in its pure form, this method is used to value a minority stake.

Transaction method, or sales method, focused on the acquisition price of the enterprise as a whole or its controlling stake. This determines the most optimal scope of application of this method - the assessment of 100% capital or a controlling stake.

The method of industry coefficients, or the method of industry ratios, is based on the use of recommended relationships between price and certain financial parameters. Industry ratios are usually calculated by special analytical organizations on the basis of long-term statistical observations of the relationship between the price of an enterprise's equity capital and its most important production and financial indicators. Based on the analysis of accumulated information and generalization of the results, fairly simple formulas were developed for determining the value of the enterprise being valued.

Mcompany method- analogue. The technology for applying the peer company method and the transaction method is almost the same; the difference lies only in the type of initial price information: either the price of 1 share, which does not provide any elements of control, or the price of a controlling stake, including a premium for elements of control. A certain difficulty is presented by the situation in which the object of assessment and the reliable initial information available to the appraiser do not coincide. For example, it is necessary to evaluate a controlling stake in an enterprise in conditions where price information on analogues is presented only by actually sold minority stakes. Therefore, in this case, the appraiser must make the necessary adjustments and increase the pre-calculated value by the amount of the control premium.

The method of industry coefficients has not yet received sufficient distribution in domestic practice, since there is no necessary information accumulated over a period of fairly long observation in a relatively stable market. The essence of the comparative approach to determining the value of a company is as follows. An enterprise similar to the company being valued that was recently sold is selected. Then the ratio between the market selling price of a similar enterprise and any of its financial indicators is calculated. This ratio is called the price multiplier. To obtain the market value of equity capital, it is necessary to multiply the similar financial indicator of the company being valued by the estimated value of the price multiplier. For example, it is necessary to evaluate an enterprise that received a net profit of 100 million rubles in the last financial year. The analyst has reliable information that a similar company was recently sold for 3,000 million rubles, its net profit for the same period amounted to 300 million rubles.

1. Let’s calculate the ratio of market price and net profit for a similar company

3 000: 300 = 10.

2. Determine the value of the company being valued:

100 x 10 = 1,000 million rubles.

However, despite its apparent simplicity, this method requires highly qualified and professional appraisers, because involves making fairly complex adjustments to ensure maximum comparability of the company being valued with its peers. In addition, the appraiser must determine priority comparability criteria based on specific conditions, assessment purposes, and quality of information.

The comparative approach to business valuation is in many ways similar to the income capitalization method. In both cases, the appraiser determines the company's value based on the campaign's income. The main difference lies in the way the amount of income is converted into the value of the company. The capitalization method involves converting annual income into value using a capitalization rate. The capitalization ratio, constructed from market data, is used as a divisor. The comparative approach also operates on market price information and the amount of income achieved by a similar company. However, in this case, income is multiplied by the ratio between price and income.

The main stages of assessing an enterprise using the analogue company method:

Stage I. Gathering the necessary information.

Stage II. Comparison of a list of similar enterprises.

Stage III. The financial analysis.

Stage IV. Calculation of price multipliers.

V stage. Selecting the multiplier value that is appropriate to apply to the company being evaluated.

Stage VI. Determination of the total value

weighing intermediate results.

VII stage. Making final adjustments. cost method

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General characteristics of the comparative approach,theoretical foundations of the comparative approach; typesinformation used in the comparative method.Basic methods of the comparative approach: company method -analogues – capital market method, transaction method, industry coefficients method.Basic principles for selecting analogue enterprises.Characteristics of price multipliers.Formation of the final cost value.

Feature of the comparative approach to the valuation of property is the orientation of the final value, on the one hand, to the market prices for the purchase and sale of shares owned by similar companies; on the other hand, on the actually achieved financial results. This chapter focuses on:

The theoretical basis of the comparative approach, the scope of its application, the features of specific methods.

Criteria for selecting similar enterprises.

Characteristics of the most important price multipliers.

The main stages of formation of the final value of the cost.

Selecting multiplier values, weighing intermediate results, making amendments.

The comparative approach is one of three approaches used in valuation practice. The appraiser uses actual market prices for similar enterprises (shares) as a guideline. The most important condition for applying the comparative approach is the presence of a developed stock market, as well as the availability and reliability of market information. The comparative approach is based on the principle of alternative investments. An investor investing in stocks buys, first of all, future income. The production, technological and other features of a particular business are of interest to the investor only from the perspective of the prospects for generating income. The desire to obtain the maximum return on invested capital with an adequate level of risk and free placement of investments ensures the equalization of market prices. The price of an enterprise reflects its production and financial capabilities, market position, and development prospects. Consequently, in similar enterprises the relationship between price and the most important financial parameters, such as profit, dividend payments, sales volume, and book value of equity capital, must be the same. A distinctive feature of these financial parameters is their decisive role in generating the income received by the investor.

Advantages of the comparative approach :

If there is sufficient information about analogues, accurate results are obtained;

The price of an enterprise reflects the results of its production and economic activities.

Disadvantages of the comparative approach :

Based only on retrospective information, practically does not take into account the development prospects of the enterprise;

It is necessary to make significant adjustments due to the strong differences between enterprises (equipment, assortment, development strategies, quality of management, etc. differ).

Comparative approach depending on the goals, object of assessment and sources of information includes three methods :

Analogue company method (capital market method). The cost base is the price multiplier. → Cost at the level of non-controlling interest;

Transaction method → Cost at the level of (non-) and controlling interest;

Industry coefficient method → The cost is at the level of a non-controlling interest.

1. Capital market method (equivalent company method) based on the real prices of shares of public enterprises prevailing on the stock market. The basis for comparison is the price per unit share of a joint stock company. Used to value non-controlling interest.

2. Transaction method - For comparison, data is taken on sales of controlling stakes in companies or on sales of entire enterprises, for example, during acquisitions or mergers. The method is used when purchasing a controlling stake in a public company, as well as to evaluate closed companies that operate in the same market segment as open companies and have similar financial indicators. Includes analysis of multiples.

3. Industry coefficient method - involves the use of ratios or indicators based on company sales data by industry and reflecting their specific specifics. Industry coefficients are calculated by special research institutes on the basis of long-term statistical observations of the selling price of enterprises and their most important production and financial characteristics.

The method of industry coefficients has not yet become sufficiently widespread in domestic practice, since the market for the purchase and sale of ready-made businesses in Russia is just developing, information on real transaction prices is often unavailable, and a long period of observation is required to obtain more accurate results.

Businesses can differ significantly from each other. Therefore, to compare them it is necessary adjustments:

If the types of activities of enterprises differ and some of the activities are not attractive to the buyer, a portfolio discount is applied to the price;

If an enterprise owns non-productive fixed assets, they must be assessed separately from fixed assets for production purposes, taking into account property tax, etc.;

If, as a result of the financial analysis, an insufficiency of own working capital or the need for capital expenditures is revealed, these amounts are subtracted from the initially obtained value of the enterprise;

The lack of liquidity inherent in closed companies requires an appropriate discount.

The main limitations of using the comparative approach are:

Limited supply; market concentration on shares of several major issuers.

Dividing the market into small segments formed by separate trading systems.

Distortion of value as a result of manipulation and various prohibited practices.

In practice, JSCs are often closed to investors. The circulation volume of shares in many OJSCs does not exceed 1-5% of the authorized capital.

Distortion of information about the financial and economic activities of the issuer

Basic concepts:

1. Capitalization = Price of 1 ordinary share * Total number of shares (7)

2. Invested Capital = Equity (Capitalization) + Debt + Preferred Shares (8)

3. Financial base (indicator) - any indicator of the financial and economic activity of an enterprise

4. Multiplier = item 2 / item 3 (rarely – item 1 / item 3) (9)

5. Transaction price – the amount of money actually paid for the object of the transaction

6. Quote – a quote to buy or sell shares on the stock market.

Transaction method

Stages of the Business Valuation Process capital market methods and transactions coincide:

1) market research and search for similar enterprises for which there is information on transaction prices or share prices;

2) financial analysis and increasing the level of comparability of information;

3) calculation of estimated multipliers;

4) application of multipliers of the enterprise being valued;

5) selection of the value of the enterprise being valued;

6) making final adjustments to the degree of control. Along with the coincidence of assessment stages, capital market and transaction methods have differences (Table 2)

Table 2 - Main differences between capital market and transaction methods

Differences	Peculiarities
Differences	capital market method	transaction method
Types of initial price information	Prices for individual shares of similar enterprises	Sales prices of controlling stakes and entire enterprises, information on mergers and acquisitions of enterprises
Time of analyzed transactions	Current stock price data	Information about previously completed transactions
Accounting for control elements	The price per share does not take into account any control elements	The price of a controlling interest or the enterprise as a whole includes a premium for elements of control
Evaluation result	Cost of one share or non-controlling interest	The value of a controlling stake or the enterprise as a whole

When making additional adjustments, each of these methods makes it possible to evaluate both a controlling and non-controlling stake in the enterprise.

If you need to evaluate a controlling stake in an enterprise, and there is information on analogues only about actually sold non-controlling stakes, an appropriate adjustment is made and the preliminary cost is increased by the amount of the control premium.

If you need to evaluate a non-controlling interest, then the value of the non-controlling discount is subtracted from the result obtained by the transaction method.

The most common method for calculating control premiums is to compare the price at which shares of a peer company were trading on the open market some time (usually two months) before the merger or acquisition transaction took place. The difference in price, expressed as a percentage of the price of a non-controlling stake, represents the value of the control premium and is the basis for determining a reasonable control premium, which the appraiser can adjust based on the available information on the company being valued.

Basis for calculating value using the transaction method:

Transaction price with shares in capital,

The price of the last transaction in shares on the stock market,

Average or weighted average price for a certain period (3-6 months),

If there are no transactions, the weighted quote = 0.6-0.7 * buy quote + 0.4-0.3 * sell quote.

Transaction method. Information sources:

1. Russian stock market

– Russian trading system (www.rts.ru)

– Moscow Interbank Currency Exchange (www.micex.ru)

– Information agencies – RosBusinessConsulting (rbc.ru), AK&M (akm.ru), Finmarket (finmarket.ru)

2. Foreign trading platforms

e.g. Frankfurt Stock Exchange, New York Stock Exchange (NYSE)

3. Information from periodicals, company websites

Simplified transaction method algorithm:

1. 5 shares of the subject of valuation were sold at $10 per share. There are a total of 5,000 shares in the company's capital.

Cost of equity capital = 10*5000 pieces*(1+premium))

2. 30% of the business was sold for $500 thousand => business value 500/0.3*(1+control premium)

Analogue company (capital market) method does not depend on whether the shares of the valuation object are quoted on the stock market.

Condition of use:

There are a sufficient number of comparable enterprises whose securities are quoted on the open market, or with large blocks of shares in which market transactions have been made in the recent past,

Availability of internal financial information on industry enterprises.

Information sources:

1. Financial information of peer companies

– Federal Commission for the Securities Market fcsm.ru

– Company websites

2. Information on the value of shares of peer companies

– See transaction method

- Database:

3. Foreign analogues

– Reuters; Bloomberg

– Corporate Information,

- other.

The main stages of the analog company method:

Stage I. Compiling a list of comparable enterprises.

Stage II. Gathering the necessary information.

Stage III. Comparability analysis

– Financial analysis, calculation of deviations by indicators.

– Increased level of comparability.

Stage IV. Calculation of price multipliers.

V stage. Selecting the final multiplier value.

Stage VI. Determining the final value of the value by multiplying the selected multiplier by the corresponding indicator of the valuation object.

VII stage. Making final adjustments.

Adjustment for degree of control and liquidity.

Selection of analogue companies:

Stage 1. Analysis and preliminary selection of industry enterprises. The maximum number of comparable enterprises is determined.

Criterion:

1. Industry affiliation. Comparable activities and products/services.

2. Availability of pricing and financial information.

Stage 2. Selection of analogues - the most comparable enterprises.

Criteria :

– Traditional theory – selection based on the results of financial analysis. In practice - comparability of production volumes, production potential and capacity, and key performance indicators.

– Comparability of business processes.

– Main markets.

Stage 3. A list of enterprises is generated to calculate multipliers.

Criteria:

– Theoretically, the calculations are identical (for example, methods of depreciation, inventory accounting, taxation, etc.).

– Stage of development and growth prospects.

– Financial risks (state of the enterprise) and availability of credit resources

– Goodwill company.

To determine comparability, the percentage deviation of an indicator for objects of comparison from a similar indicator for the object of assessment can be calculated using the following formula:

Price multiplier- this is a coefficient showing the average ratio between the price of enterprises in the industry and any indicator of financial and economic activity (financial base).

To determine the value of the valuation object, the resulting price multiplier (coefficient) is multiplied by a certain financial indicator of the company being valued.

(11)

Methods for calculating the price of a similar company:

1. Analogue price= Capitalization = Price of 1st JSC x Number of JSC (12)

2. Analogue price= = Price of the 1st JSC x Number of JSC + Price of the 1st AP x Number of AP + long-term (or all) debt (%) (this is both a loan and bonds) (13)

It is preferable to use the second method, because it allows you to take into account the capital structure of peers and the subject of assessment.

Sometimes buy and sell quotes are posted for stocks, but the trading system does not show the transaction price, or the transactions are not completed at all. In this case, the purchase quote, reflecting the demand for these securities, or the average of two quotes can be used as a price guide. Quotations may also be examined for a certain period, which, in the opinion of the appraiser, is representative. Based on them, the most probable cost was derived.

Examples of price multipliers:

– Interval:

1. Price/earnings (P/E);

2. Price/cash flow (P/CF);

3. Price/Volume of production (in physical and monetary terms);

4. Price/Result from sales.

5. Price/dividend payments (more for preference shares),

– Momentary:

1. Price/book value (P/BV);

2. Price/fixed assets.

The selection of the multiplier is carried out by the appraiser:

P/Volume of production, P/Volume of reserves - fully characterize the performance indicators of the enterprise and its production potential. They are not distorted due to various optimization schemes and the specifics of corporate governance.

P/E – in the world practice of investment analysis;

P/CF – taken into account for enterprises with significant fixed assets.

P/Sales is one of the main indicators for industries whose main performance indicator is turnover. There is a directly proportional relationship between P/Sales and profitability of sales.

P/Balance Value – there is a correlation with the amount of equity capital. The higher the profitability of the insurance company, the higher the multiplier value.

R/Dividends – only for minority stakes, most often – for preferred shares.

Selecting the final multiplier value among all multipliers obtained from analogues:

Mean, median or weighted average

Based on the correlation between the indicator on which the multiplier is calculated and the cost

Based on the relationship between the multiplier and the corresponding financial ratio

Based on the results of financial analysis

To determine the value of the valuation object, the resulting price multiplier (coefficient) is multiplied by a certain financial indicator of the company being valued.

(14)

Final adjustments to cost in the peer company method:

If the multiplier was calculated based on invested capital => adjustments:

– The value of the preferred shares of the valuation object is deducted

– The market value of the debt is deducted

Traditional amendments:

Control premium

Discount for low liquidity

Less commonly introduced:

Excess/deficit of juice

Non-functional assets

Simplified algorithm of the analog company method:

1. 30% was sold for $500 thousand => business value 500/0.3*(1+premium)

2. Price of analogue 100, Net profit of analogue = 50, C/PP multiplier = 2

3. PE of the valuation object = 40, cost = 2*40*(1+Control premium)*(1-discount for lack of liquidity)

Method of industry ratios (synonyms: method of industry coefficients, formula method) consists in determining the estimated value of an enterprise using ratios or indicators based on sales data of companies by industry and reflecting their specific specifics. Industry coefficients or ratios are calculated, as already mentioned, on the basis of statistical observations by special research institutes.

The market for the purchase and sale of ready-made businesses in Russia is just developing, so the method of industry coefficients has not yet received sufficient distribution in domestic practice. In the West, the business market has been developed for a long time and, as a result of generalization, fairly simple relationships have been developed to determine the value of the enterprise being valued.

The method is advisable to use only in cases where such enterprises are often sold, and the appraiser has accumulated experience in assessing objects of this type. Moreover, industry ratios can be developed by the appraiser independently based on analysis of industry data. The most typical ratios used in determining the estimated value of a business in market countries are shown in Table 3.

Table 3 - Industry ratios for determining business value

The method of industry ratios is gradually finding application in Russian practice, in particular in connection with the introduction of a single tax on imputed income, when it is possible to find out the estimated income of a business and compare it with sales prices.

So, to evaluate a company using a comparative approach, price and financial information on similar enterprises is used. The list of similarity criteria begins with industry affiliation and depends on the specific conditions of the assessment, but the final decision on similarity is made based on the results of financial analysis. The comparative approach is applicable if the list contains at least three analogous companies.

The assessment of market value using comparative approach methods is based on the use of price multipliers that reflect the ratio of the market price and some indicator reflecting the profitability of the enterprise. The price multiplier is calculated based on analogues and is used as a multiplier to the adequate indicator of the company being valued.

In valuation practice, the following types of price multipliers are most often used:

"Price / Profit";

"Price / Cash Flow";

"Price / Dividend"";

“Price / Sales revenue”;

“Price/Physical volume”;

"Price/Book Value".

Calculation of the total value of the enterprise carried out in three stages:

1. Selecting the multiplier value that is appropriate to apply to the object being evaluated.

2. Agreement on preliminary results.

3. Adjustment of the final cost.

The value of the price multiplier calculated for each of the peers can vary significantly, so the appraiser must decide which value should be applied to the company being valued using the results of financial analysis. Preliminary market value results obtained based on the use of various types of price multipliers are subject to an approval procedure based on expert weighing. The specific weight given to each result depends on the quality of the initial information, the specific conditions of the assessment, and the role of the price multiplier.

The final adjustments ensure greater objectivity of the assessment results. The use of a system of bonuses and discounts makes it possible to take into account the influence of significant additional factors, such as the adequacy of invested capital, the presence of non-performing assets, and liquidity. The ability to include a control premium makes the peer company method more universal and applicable for estimating the controlling share of a firm's equity capital.

The comparative approach and its main methods are based on the use of a large volume of price and financial information on a significant range of enterprises. The need to process a large information array in order to identify the dependence of the market value of a company's equity capital on various pricing factors requires the use of mathematical methods at various stages of assessment.

Business valuation is necessary when selling, merging or closing a company. To determine the market value of an organization's capital, experts use three approaches.

One of them is comparative. All the nuances of its implementation will be discussed in this material.

Its essence, pros and cons

The essence of this approach is that the price of an organization's capital is determined based on the value of similar firms on the market. That is, when valuing a company, the assumption is made that the investor or buyer will not spend more money than he could invest in a similar business.

As a basis for calculations, the appraiser uses the already formed value of similar companies.

For example, if a business was recently sold, the activity profile, size and weight of which on the market was approximately the same as the company under study, the specialist will take into account the price of this organization in the analysis.

At the same time, other factors that affect the amount of capital are also taken into account:

investment risk;
industry development trends;
supply and demand for similar businesses;
individual characteristics of the company.

The comparative approach is based on the principle of alternative investments. The investor, purchasing shares and other securities, expects to receive income, while the technical equipment of the company, production capacity, and personnel qualifications do not interest him. This position of the investor forces market prices for enterprises to balance.

The technique is characterized by some positive and negative aspects of its application. The advantages include:

The appraiser uses information about the value of similar enterprises in the industry. Their price has already been determined by the market, so to set the price for a specific business, a specialist only adjusts the existing value. Unlike other methods, there are no lengthy, complex calculations involved.
The method reflects the real operation of market mechanisms. The cost of similar organizations is set based on supply and demand operating in a given industry.
The approach provides the most accurate calculation results.
When determining the value of an enterprise, the specifics of its activities are taken into account.

Negative points:

the approach is based only on information about already completed transactions, that is, development prospects are not taken into account;
adjustments need to be made, since there are no identical companies, different organizations of the same profile of activity can differ significantly;
It is not always possible to obtain information about similar businesses, since some companies do not participate in trading on the stock market, and closed joint-stock companies do not disclose their financial information.

You can understand the essence of this assessment method by watching the following video:

Methods used

The comparative approach involves calculations using one of the following methods.

Capital market method

Also called the peer company method. It is based on the use information on prices of transactions with shares. At the same time, the prices of shares of OJSCs whose securities are sufficiently liquid are compared. Most often, the method is used to determine the value of a smaller share of capital.

When making calculations, the appraiser relies on information about the value of assets of similar enterprises. Based on this information, the ratio of the value of securities and certain indicators of similar companies is calculated.

The result of the calculations is an indicator established using one of the formulas that determines the ratio of price to:

net profit;
balance sheet profit;
dividends;
production volumes;
revenue;
cash flow.

Estimating the cost of capital of a company using this method has the following algorithm:

A list of similar organizations is being compiled.
The value of one company's shares is multiplied by the number of securities outstanding to obtain the market value of a similar company.
The most effective coefficient for a given organization is calculated.
The resulting indicator is multiplied by the appropriate base, which determines the estimated value of the analyzed business.

The final conclusion can be made based on any indicator or a combination of them. You can also use data from several similar companies at once in calculations.

Industry coefficient method

With its help, market value is calculated using formulas established on the basis of industry statistics. The practical application of the method is currently not widespread.

Transaction method

This method involves obtaining information about transactions with controlling or one hundred percent stakes firms similar to the one under study. The calculation is similar to the capital market method, but has some features.

The use of this method involves the calculation and use of coefficients established based on the prices of shares that were actually sold as part of a controlling stake in a similar company. The technique is most often used to estimate the market value of small closed firms or a controlling stake.

Stages of their implementation

The approach is carried out in several stages:

Search for one or more similar companies for analysis. The following characteristics are assessed:
- similarity of industry and activity profile;
- identity of manufactured products;
- geographical position;
- similarity of financial indicators;
- identity of enterprise sizes, development strategies.
Research of information about the company, comparison of indicators of a similar organization and the company being evaluated.
Calculation of factors or ratios on the basis of which the market value of a business is determined.
Using the obtained indicators to calculate the price of the enterprise.
Final cost adjustment taking into account the individual characteristics of the company.

In Russia, the securities market is not yet very wide; most of it is occupied by monopolists. Information about transactions is often distorted, and purchases take place under non-market conditions. This fact is due to the low liquidity of assets of Russian enterprises. For these reasons, the use of the comparative method is extremely limited.