Business Valuation (eBook)

Theory and Practice

Marco Fazzini (Autor)

eBook Download: PDF

2018 | 1st ed. 2018
227 Seiten
Springer International Publishing (Verlag)
978-3-319-89494-2 (ISBN)

Infos

This book provides an applied theoretical approach to modern day business valuation. It combines elements from both finance and accounting to help practitioners identify the most suitable method for analysis, showing when and how methods can be applied in different contexts and under specific constraints. It describes how business valuation techniques can be applied to calculate value in case of transactions, litigation, IPOs, and the fair value under an IFRS framework.

The purpose of this book is to offer a guideline for the application of an integrated approach, thereby avoiding "copy and paste" valuations, based on pre-packaged parameters and the uncritical use of models. Specifically, an Integrated Valuation Approach (IVA) should be adopted that encompasses, within any specific method, a wide range of elements reflecting the characteristics and specificities of the firm to be valued.

The book is based on the International Valuation Standards issued by the International Valuation Standards Council. Valuation standards allow for an alignment of both the methods and their application, providing a common basis for valuers.

Autor

Marco Fazzini is Full Professor of Financial Accounting at the European University of Rome, Italy. Alongside his academic commitments, Professor Fazzini also undertakes a number of corporate consulting assignments with a specific focus on M&A, corporate restructuring, and company valuation.He is President and a member of the board of auditors for a number of listed companies, banks, insurance companies, and leading European entities. He is also a member of the Italian Accounting Standards Commission, and a member of various academic associations.He is the author of numerous monographs and scientific publications. Professor Fazzini received his PhD in Business Administration from the University of Pisa, Italy.

Inhalt

Preface 6
Contents 8
List of Figures 9
List of Tables 11
1: Value, Valuation, and Valuer 14
1.1 What Does Making a Valuation Mean? 14
1.2 The Business Valuation 15
1.3 What Is Value? 17
1.3.1 Common Elements of the Bases of Value 18
1.3.1.1 Assumed Transaction 19
1.3.1.2 Assumed Date of the Transaction 19
1.3.1.3 Assumed Parties to the Transaction 19
1.3.2 Bases of Value 20
1.3.3 Objective and Subjective Component of Value 21
1.4 Valuation Methods at a Glance 22
1.5 Types of Valuation 24
1.6 Who Is the Valuer 25
1.7 The Valuation Report 27
1.8 Compliance with Valuation Standards 31
1.8.1 International Valuation Standards Council 33
1.8.2 National Association of Certified Valuators and Analysts 33
1.8.3 Canadian Institute of Chartered Business Valuators (CICBV) 34
1.8.4 American Society of Appraisers (ASA) 34
1.8.5 The Appraisal Foundation 35
1.8.6 American Institute of Certified Public Accountants (AICPA) 35
1.8.7 The European Group of Valuer’s Associations (TEGoVA) 35
2: Integrated Valuation Approach (IVA) 36
2.1 The Traditional Valuation Approach 36
2.2 Integrated Valuation Approach (IVA) 37
2.3 Context Analysis 38
2.3.1 Internal Elements Analysis 38
2.3.2 External Elements Analysis 40
2.4 Analysis of Past Results 43
2.5 Choosing the Valuation Approach 44
2.6 Is a Business Worth Something Only If It Creates Value? 46
2.6.1 Actual Value and Potential Value 48
2.7 Can Valuation Be Standardized? 49
3: Financial Statement Analysis 51
3.1 Introduction 51
3.2 How to Set Up the Financial Statement Analysis 51
3.3 Comparing Values 53
3.4 Reclassified Balance Sheet 54
3.4.1 Business Assets 56
3.4.2 Net Debt 57
3.5 Reclassified Income Statement 59
3.6 The Cash Flow Statement 61
3.7 Ratio Analysis 62
3.7.1 Profitability 62
3.7.1.1 Return on Equity (ROE) 63
3.7.1.2 ROI (Return on Investments) and ROA (Return on Assets) 65
3.7.1.3 Differences Between ROE, ROA, and ROI 66
3.7.1.4 EBITDA/EBIT Margin 66
3.7.1.5 Turnover Ratio 69
3.7.2 Liquidity Management 69
3.7.2.1 Short-Term Liquidity Ratios 71
3.7.2.2 Operating Working Capital Turnover 73
3.7.3 Financial Strategy 77
3.7.3.1 Equity-to-Capital Ratio 80
3.7.3.2 Debt-to-Capital Ratio 80
3.7.3.3 Debt-to-Equity Ratio (D/E) 81
3.7.3.4 Debt-to-Sales Ratio 81
3.7.4 Dividend Policies 82
3.8 Financial Statement Analysis in Distressed Firms 83
3.8.1 How the Crisis Shows Up 84
3.8.2 Impact of the Crisis on the Main Ratios 85
3.8.2.1 Profitability 85
3.8.2.2 Liquidity Management 86
3.8.2.3 Financial Strategy 87
3.8.2.4 Dividend Policies 88
4: Income-Based Method 89
4.1 Introduction 89
4.2 Expected Cash Flows 90
4.2.1 Asset-Side and Equity-Side Valuation 92
4.2.2 The Time Horizon 94
4.2.3 Risk 96
4.3 Discount Rate 97
4.4 Cost of Equity 97
4.4.1 Risk-Free Rate (r) 98
4.4.1.1 The Time Horizon 98
4.4.1.2 The Geographic Relevance 101
4.4.2 Beta (?) 102
4.4.2.1 Levered and Unlevered Beta 105
4.4.2.2 Multibusiness Company Beta 108
4.4.2.3 The Main Weaknesses of Beta 109
4.4.3 Equity Risk Premium (ERP) 110
4.4.4 An Overview of CAPM 114
4.4.5 Adjusted CAPM: Do We Really Need It? 115
4.5 Cost of Debt 117
4.6 Weighted Average Cost of Capital (WACC) 120
4.7 The Terminal Value 122
4.7.1 Cash Flow or EBIT? 126
4.7.2 The Role of the Terminal Value 127
4.7.3 Alternative Methods for Calculating the TV 129
4.8 A Summary Example 130
4.9 The Dividend Discount Model (DDM) 132
5: Market-Based Method 135
5.1 Introduction 135
5.2 Widespread Use of the Multiple Method 137
5.3 Asset-Side and Equity-Side Approach 141
5.4 Application of the Market Multiple Method 142
5.5 Selection of the Peer Group 142
5.5.1 Selection of Peer Group in the Comparable Companies Method 142
5.5.2 Selection of Peer Group in the Comparable Transaction Method 147
5.5.3 Selection of Peer Group: Application Tools 149
5.6 Correlation Between Multiple and Performance Measure 151
5.7 Asset-Side Multiples 153
5.7.1 EV/Sales 154
5.7.2 EV/EBITDA 155
5.7.3 EV/EBIT 157
5.7.4 EV/Free Cash Flow 159
5.8 Comparison Between EV/EBITDA and EV/EBIT 160
5.8.1 The Peer Group 161
5.8.2 Evolution and Volatility in Multiples Over Time 161
5.9 Equity-Side Multiples 174
5.9.1 Price/Earnings (P/E) 175
5.9.2 PEG Ratio 177
5.9.3 Price/Book Value 179
5.9.4 Price/Free Cash Flow to Equity (P/FCFE) 181
5.10 Application of Multiple to the Target Company 182
6: The Cost Approach 187
6.1 The Rationale of the Cost Approach 187
6.2 Replacement and Reproduction Cost 189
6.3 Plant and Equipment Valuation 191
7: Intangible Assets Valuation 194
7.1 The Increasing Role of Intangible Assets 194
7.2 Definition and Identification of Intangible Assets 197
7.3 The Valuer’s Tasks 198
7.4 Valuation Approaches 200
7.5 The Income Approach 201
7.5.1 Relief-from-Royalty Method 201
7.5.2 Premium Profit Method 205
7.5.3 Excess Earnings Method 209
7.5.4 Greenfield method 212
7.6 The Market Approach 213
7.7 The Cost Approach 213
7.7.1 Value of the Workforce 216
7.7.2 Value of a Computer Software 218
8: Premiums and Discounts in Business Valuation 220
8.1 Value of the Firm and Value of the Shares 220
8.2 Premiums and Discounts 221
8.3 CP and DLOC 222
8.4 Discount for Lack of Marketability 226
8.5 Other Discounts 227
Index 229

Produkt-Details

• Erscheint lt. Verlag: 6.6.2018
• Zusatzinfo: XV, 227 p. 41 illus.
• Verlagsort: Cham
• Sprache: englisch
• Themenwelt: Wirtschaft ► Betriebswirtschaft / Management ► Finanzierung
• Schlagworte: Accounting • Company valuation • Cost-based Approach • Cost of capital • Distressed Company Valuation • Finance • Income-based Approach • Intangible Assets Valuation • International Valuation Standards • market-based approach
• ISBN-10: 3-319-89494-3 / 3319894943
• ISBN-13: 978-3-319-89494-2 / 9783319894942