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How is the value of the enterprise determined

a drawing of a book on the assessment of real estate, equipment, cars and other property

Since making the expert evaluation of enterprises (and shares and corporate rights) there are many nuances and different evaluation situations, we suggest you for advice on these works contact us by phone or e-mail. We will answer all your questions with reference to the company being evaluated, as unfortunately there are no common approaches for this service, and the cost of the work, the timing and the procedure of the evaluation are determined individually.

Independent evaluation of enterprise (shares and corporate rights) three methodological approaches could be used:

  • comparative – compare our company with the cost of similar enterprises. This method works well at valuation of securities too, which are listed on stock exchanges and are actively sold and bought. However, its application is often only possible in determining the value of a minority interest. In theory, this approach can also be applied to valuation of corporate rights of he entire enterprise or its controlling interest, but in this case the approach is based on too many assumptions and may distort the final value results. The comparative approach in calculating the value of the enterprise as a whole is generally used as an auxiliary (only to provide guidance on the value) in evaluating large banks and insurance companies.
  • income – we analyze the income of the enterprise and through them we calculate its value. The approach often does not reflect the real value of shares or corporate rights, as our balance sheet does not always reflect the real picture of revenues and expenditures. In addition, this method of valuation is based on the forecasts of the development of the enterprise, and therefore it is based on too many assumptions. With the income approach it is convenient to estimate minority shares, but in practice it is also rare to apply this method, because the absolute majority of companies do not pay dividends on their shares.
  • costly – evaluate the value of the company’s assets and subtract from them the value of its liabilities. In most cases for stock valuation or corporate rights of enterprises used precisely the costly approach. The use of this method of calculating the value is possible only if the evaluator has access to the accounting records of the evaluated company. This is due to the fact that the calculations need not only the balance for the last reporting period, but also to decipher some of its lines. For example, we see that the balance of the enterprise takes into account fixed assets in the amount of 1 million UAH. We ask the customer to provide the decryption of the line “fixed assets”. After receiving the transcript, it turns out that the enterprise owns real estate, cars, furniture and office equipment. In this case, for real estate valuation the appraiser will ask for installation documents and technical passports; for car evaluation – certificates of registration of vehicles. For property evaluation of the other types in most cases, sufficient information indicated in the interpretation: name, original cost, date of commissioning.