Petro Kutsyk
Lviv University of Trade and Economics, Ukraine
E-mail: petrokutsyk55@gmail.com
Maksym Koryagin
Lviv University of Trade and Economics, Ukraine
E-mail: maxuza@rambler.ru
Mariya Chik
Lviv University of Trade and Economics, Ukraine
E-mail: marija_chik@ukr.net
Svitlana Kuskova
Kharkiv Petro Vasylenko National Technical University
of Agriculture, Ukraine,
E-mail:
lana.svetlana.kuskova@ukr.net
Submission: 23/11/2018
Revision: 10/12/2018
Accept: 27/12/2018
ABSTRACT
The
article explores the process of development the evaluation of market value of
the enterprise in the system of accounting and analytical support. The purpose
of our research is to determine the methodology for evaluation the enterprise
value that provides a reliable and reasonable calculation of indicators
enterprise value based on the data of the accounting system. A hypothesis was formulated, which later on received a
confirmation. A comparative analysis of the characteristic features the
application of different evaluation approaches of the enterprise (income, cost,
market) was carried out. The authors determined that the formation of the
market value of the enterprise should be carried out in the system of
accounting and analytical support of the enterprise and determined by the
indicator of net assets, which should be adjusted to the predicted level of
profitability taking into account alternative risk-free investments and the
risks level of the enterprise. The proposed concept for determining the market
value of the enterprise provides a reliable and reasoned calculation of value
indicators based on the data of the accounting system for both profitable and
unprofitable enterprises.
Keywords: accounting,
evaluation, market value, enterprise, net asset
1. INTRODUCTION
The process of determining or calculating the value of
the enterprise is a complex dynamic phenomenon based on the data of the system
of accounting and analytical support of the enterprise (Figure 1). The subsystem of determination or formation of the
enterprise value can be implemented within the framework of the accounting
system with the execution of additional analytical procedures. The additional
analytical procedures provide determination of fair asset value and
liabilities, evaluation of net assets of the enterprise, anticipated net profit
/ loss taking into account its dynamics in previous years, calculation the
indicator of market value of the enterprise with determination of changes in
return on equity in the expected period.
The process formation of enterprise value reflects the complex
of management actions, which involves identifying, evaluation and regulating
the influence of factors of enterprise value that generate or destroy of the
enterprise value. The macro-environment factors reflect the economic,
political, legal, technique and technological phenomenon. This phenomenon is
independent of the enterprise and requires the adaptation of its activities to
the nature of the influence of such factors.
The mezzanine environment reflects the specifics of the
functioning of the industry, including the features of the raw material base,
the complexity of the activity, and the nature of innovation, which should be
taken into account in the management of formation of the enterprise value. The
microenvironment is formed in view of the specifics of the enterprise. It
depends on the structure of capital, the establishment of interrelationships
between departments, the quality of management and may change under the
influence of management decisions.
In national and foreign publications, the problems of
using different methods for determining or evaluation the value of an
enterprise are considered, which, given the use of identical factors, factors
of enterprise values and output data, as a rule, give different values.
The urgency of solving the problem of choosing the best
methods for evaluation the enterprise value is due to the lack of clearly
established limitations on the application of appropriate methods of
evaluation, insufficient justification of mathematical variables and fuzzy interpretation
of the results obtained and the parameters of their reliability, imperfection
of the current accounting system.
The current accounting system generates financial
statements that complicate the process of determining the enterprise value. In
this regard, the non-analytical application of the proposed methods for
evaluation the enterprise value doesn’t allow to properly take into account the
information formed in the accounting system, the influence of factors of
macro-, mezzo- and microenvironment, and it’s ineffective in an unstable
economic environment. If the evaluation the enterprise
value is not supported by relevant information about its activities, while anticipated data is not
based on accurate evaluation methods, the statements about the enterprise value and the
evaluation results contained are inappropriate for sound economic decisions.
2. REVIEW OF EMPIRICAL LITERATURE
Let us consider more in detail the proposed economic
methods for enterprise value, which in the majority are based on the accounting
data and financial statements.
The enterprise value, as a result of its activity, is
based on the evaluation methodology (income approach – in the views of
economists, cost approach – in the views of accountants), which don’t explain
the nature of value as an independent economic category.
The comparative analysis of the specific features of
applying different approaches to evaluation the enterprise value allows for the
following conclusions:
1. The cost approach should be used for enterprises with
unstable financial results, as well as for newly created and technologically
unique enterprises. It should be borne in mind that the results of evaluation
the enterprise value using the methods of cost approach in terms of
undervaluation of the intangible benefits of the enterprise cause a decrease in
its value.
2. The income approach to evaluation the enterprise value
allows obtaining the most accurate results, if the investigated enterprise is
not newly created, information about its activities is reliable, transparent
and accessible, and the profitability of the enterprise is relatively stable in
the last few years of functioning.
Figure 1: System
formation and management of enterprise value
Source: Kozodaev and Pylov (2003)
3. The market approach to evaluation the enterprise value
can be applied to both profitable and non-profitable enterprises. In this case,
the determining factor for the evaluation of this approach is the presence of
enterprises similar to the research. This approach will also be more effective
for newly created enterprises involved in providing services or performing work
that is not unique in a particular market segment.
The purpose of our research is to determine the
methodology for evaluation the enterprise value that provides a reliable and
reasonable calculation of indicators enterprise value based on the data of the
accounting system.
Advantages, disadvantages and procedures for using
different methods of evaluation the enterprise value, including variations the
methods of income, cost and market approaches, restriction of it use are
disclosed in the scientific works of (KOZODAEV; PYLOV, 2003; CHEBOTAREV, 2009).
The detailed analysis the methods of evaluation the enterprise
value are given in the research papers of Polish researchers. In particular,
Michula (2012) reveals the classification, advantages and disadvantages the
methods of evaluation the enterprise value in the context of income, cost,
market and mixed approaches. The author also highlights non-comparable methods
of evaluation, which include methods the theory of options, time delay methods,
MDR method as a separate type. Nogalsky and Zalewski (1998) are highlighted practical approaches to
the implementation the methods of evaluation for cost approaches (method of
disposal value, method of net asset value) and income approaches (method of
discounting cash flows).
The Polish scientists consider that the most universal
and reliable method of evaluation the enterprise value is the method of discounting
cash flows. So Besyada (2010) and Majewski (2010) argue that the methods of the
income approach best reflect the market value of the enterprise. The enterprise
value can be estimated reliably only if, at present, the value of the income
that will be generated by the enterprise in future periods will be calculated.
Russian scientists also support this position. As noted
by Palamarchuk (2004), the method of discounting cash flows (DCF) is a key
method of business valuation. This is the most popular method, since it mainly
implements the basic prerequisite for business valuation, has the largest
theoretical base and flexibility. Russian scholars also support this position.
Shcherbakov and Shcherbakova (2006) disclose conditions
and restrictions on the use of the method of discounting cash flows. Thus, the
authors focus on the fact that this method gives the most accurate results when
estimating enterprises that have a history of economic activity. Such
enterprises are in a stage of growth or stable economic development.
Accordingly, it is necessary to apply carefully the method of discounting cash
flows to evaluation the new enterprise.
The method of discounting cash flows for share capital
and the peculiarities of creating a positive and negative market value added
for shareholders (MVAe) are researched in the works of (MYKOLAYEK-GOTSEYN, 2010).
In particular, the author draws attention to the need to differentiate the
value created by investments of shareholders and the value generated through
investment in assets.
Copeland, Coller and Murin (2005) emphasize on the
disadvantages of applying the method of discounting cash flow on stocks who
note that discounting cash flow on stocks reveals less information about
sources of value and is not so helpful in identifying new opportunities for
creation the value. In addition, this method requires a significant amount of
adjustments to bring the projected funding structure to the true value of the
enterprise value.
Rosh (2008) emphasized on issues related to the use of
the method of discounting cash flows. In particular, the author draws attention
to the need to evaluation the level of professionalism and validity of the
forecasts, it significance for the enterprise, the need to take into account
the sectorial factors. The incorrect consideration of the sectorial factors can
undermine the reliability of evaluation the enterprise value.
In the study of Evans and Bishop (2009) the peculiarities
of applying the methods of income approach in mergers and acquisitions,
practical problems the evaluation of joint stock companies were also reflected.
The practical application the method of discounting free
cash flows for the enterprise, for equity capital and assets should give the
same generalized indicators enterprise value. As noted by these methods give
the same results in the following conditions:
a) it market value is taken as the value of equity
capital and debts;
b) the growth rate of income is zero;
c) the ratio between the enterprise’s capital components
must be constant throughout the period of evaluation (LEIFER; VOZHYK, 2004).
3. DATA AND METHODOLOGY
The methodological basis of the research is the
systematic approach, which provided evaluation the system of accounting and
analytical support of the PJSC “Iskra+”. The system-structural method allowed
forming a classification of evaluation approaches to the value of the PJSC
“Iskra+”. The analysis as a universal method of scientific knowledge was used
to carry out an analysis of the activity of the PJSC “Iskra+” in determining
the market value of the enterprise.
Economic and statistical methods and expert assessments
allowed to determine the degree of enterprise risk and the risk of inadequate
valuation for adjusting the market value of the PJSC “Iskra+”. Methods of formalization
and symbolic logic allowed to develop methodological principles of complex
economic analysis of value indicators of PJSC “Iskra+”.
The information base of the research is the reports and
official data of the state, regional statistics departments, official data of National
Bank of Ukraine, financial, managerial, statistical and specialized reports of
PJSC “Iskra+” for the period 2007-2017.
4. RESULTS AND DISCUSSIONS
4.1.
The
content of calculating the market value of the enterprise
In our opinion, conceptual changes in the order of
determining the market value of the enterprise should ensure strict accuracy of
the calculated indicators, it objectivity and economic justification.
Formation the market value of the enterprise should be
carried out in the system of accounting and analytical support of the
enterprise and determined by the indicator of net assets, which should be
adjusted to the anticipated level of profitability taking into account
alternative risk-free investments and the level of risks of the enterprise’s
activity.
We recommend calculating the market value of the
enterprise according to the following formula:
(1)
where Vt – market value of the
enterprise at time (moment of determining the enterprise value);
NAVt – net asset value
adjusted at time (t);
Et – expected estimated values
based on anticipated data available at time (t);
NAVi – the net asset value of
in the expected period, taking into account the received profit;
NIi – net income in the
expected period;
rе – value of equity capital;
Rt –risk estimated at the time
(t);
і – sub-index, which refers
the indicators to the prediction period, i=,
І – prediction horizon.
The basis for the proposed calculation of the enterprise
value is the net asset value (the difference between the value of assets and
the value of liabilities). At the same time, the net assets value should be
taken at the end of the reporting period (NAVt) (as opposed to its value at the
beginning of the period using the method EVA (NAV0)) and should be adjusted in
the accounting system and brought to its fair value. The determination of fair
value is carried out separately for various types of noncurrent and current
assets and liabilities using specific methods of cost, income and market
approaches, depending on the type of assets and liabilities.
In determining the amount of additional profit that is
provided by the synergistic interaction the components of intellectual capital,
the indicators of discounted difference between the net profit and the value of
equity should be used:
(2)
The return on capital should be determined on the basis
of the estimated value of net assets value in the expected period, taking into
account the profit received in the previous period (NAVi):
(3)
where NAVt – the net asset
value adjusted at the end of the reporting period;
NAVi – the net assets value in
the expected period, taking into account the received profit;
NAVi-1 – the net assets value
in the previous expected period;
NIi-1 – the net income
received in the previous expected period.
The reliability of conducting settlements increases
taking into account annual changes in equity due to the received financial
result (net profit / loss).
The general indicator the market value of the enterprise
should be adjusted to the level of risks of its activity. The determination of
risk is based on the consideration of risk factors of the macro-, mezzo- and
microenvironment. The assessment of these factors is ensured by the use of
expert methods.
The proposed concept for determining the market value of
the enterprise differs from existing approaches by the following provisions:
a) the model of evaluation the enterprise value consists
of three basic components: the value of net assets, the discounted difference
between the projected net income and the alternative value of capital, the
estimated risk of economic activity;
b) the value of net assets should be taken at the end of
the reporting period as fair value (as opposed to the value at the beginning of
the period or the average annual value). The determination of fair value is
carried out in the accounting system separately for various types of noncurrent
and current assets and liabilities using specific methods of cost, income and
market approaches depending on the type of assets and liabilities;
c) the amount of additional income provided by the
synergistic interaction the components of intellectual capital. It’s determined
as the discounted difference between the anticipated net profit and the
alternative return on capital at the value of risk-free government bonds for 5
years of the expected year (as opposed to the full amount of actually received
net profit, projected net profit and continued value);
d) discounting is carried out at the value of capital,
which is determined by the level of yield of domestic state bonds denominated
in the national currency. It’s reflects the lowest level of riskiness of
investments (as opposed to the weighted average or industry average value of
capital);
e) the return on capital is determined on the basis of
the estimated value of the net assets in the expected period, taking into
account the discounted profit received in previous periods (as opposed to the
actual profitability indicator).
4.2.
The
calculations of market value indicators of PJSC “Iskra+”
Detailed calculations of market value indicators and its
adjustments were made for PJSC “Iskra+” (The name of enterprise is not
specified, in order to maintain commercial secrecy).
PJSC “Iskra+” is one of the
leading enterprises in the world for development, production, repair and
service of aviation gas turbine engines for airplanes and helicopters. The
enterprise is located in the southeast of Ukraine. For PJSC “Iskra+” as one of
the basic enterprises of this research, the level of anticipated net profit,
which will be received in 2018-2020, was carried out in three ways using the
analytical alignment of the dynamic series based on the actual data on the net
profit earned by PJSC “Iskra+” 2007-2017.
The choice of the form of function, reflecting the trend
of changes in net profit indicators, was made taking into account the actual
dynamics of the base indicator. The calculation was based on the linear,
parabolic second order function and the method of adaptive modelling and
prediction. The results of the analytical alignment the number of dynamics
based on the linear dependence (Ỹ = a0 + a1t) are presented in Table 1.
Таble 1: Alignment
of the net profit received by PJSC “Iskra+” in 2007-2017 (linear dependence)
Years |
Actual net profit, thousands of UAH |
Conditional symbol of periods, ti |
yiti |
ti2 |
Calculated net profit Ỹ= a0+a1t, thousands of UAH |
(Y - Ỹ)2 |
2007 |
55955 |
-5 |
-279775 |
25 |
-227043,55 |
80088176729,39 |
2008 |
108605 |
-4 |
-434420 |
16 |
-109511,31 |
47574724291,44 |
2009 |
117619 |
-3 |
-352857 |
9 |
8020,93 |
12011737545,53 |
2010 |
53217 |
-2 |
-106434 |
4 |
125553,16 |
5232520569,63 |
2011 |
49384 |
-1 |
-49384 |
1 |
243085,40 |
37520232361,96 |
2012 |
37627 |
0 |
0 |
0 |
360617,64 |
104322951178,59 |
2013 |
207126 |
1 |
207126 |
1 |
478149,87 |
73453939588,09 |
2014 |
3843 |
2 |
7686 |
4 |
595682,11 |
350273531049,52 |
2015 |
741229 |
3 |
2223687 |
9 |
713214,35 |
784820869,30 |
2016 |
1248028 |
4 |
4992112 |
16 |
830746,58 |
174123781959,83 |
2017 |
1344161 |
5 |
6720805 |
25 |
948278,82 |
156722701881,12 |
Total |
3966794 |
х |
12928546 |
110 |
3966794,00 |
1042109118024,40 |
The calculation of the equation parameters was carried
out with the least squares method using the system of normal equations:
(4)
The defined indicators the
equations of the straight line are: a0 = 360617,64; a1 = 117532,24.
Accordingly, the linear equation describing the dynamics of obtaining net
profit of PJSC “Iskra+”: Ỹ= 360617,64 + 117532,24·t,
where t – serial number of periods or moments of time.
For PJSC “Iskra+” the anticipated net profit, which will be
received in 2018-2022, according to linear dependence, are as follows (Table
2).
Таble 2: The anticipated net
profit received by PJSC “Iskra+” in 2018-2022 (linear dependence)
Year |
The anticipated
net profit, thousands of UAH |
2018 |
1065811,05 |
2019 |
1183343,29 |
2020 |
1300875,53 |
2021 |
1418407,76 |
2022 |
1535940,00 |
The interval evaluation is also used, which are
determined by trust intervals of the forecast when drawing up forecasts, apart
from point values. The value of the trust intervals is determined as follows:
ỹ, (5)
where Sy – average square deviation from trend;
α – the tabular value of the t-criterion Styudent’s at the level of
significance α.
(6)
where yi, yt – the actual and calculated values the levels of the dynamic
series;
n – number of levels in a series;
m – number of parameters in the trend equation.
Thus, it can be argued
with a probability of 95 %, that in 2022 the net profit of PJSC “Iskra+” may
not be less than 1326018,6 thousand UAH, but the net profit will not be higher
than 1745861,3 thousand UAH.
The parabola of the second
order (Ỹ = a0 + a1t + a2t2) was used to confirm the correctness of the anticipated values also, taking into
account that the absolute increments the net profit of PJSC “Iskra+” are not constant. The
results of the analytical alignment of a series of dynamics for a parabolic
dependence are presented in Table 3.
Таble 3: Alignment of the net
profit received by PJSC “Iskra+” in 2007-2017
(parabolic dependence)
Year |
Actual net
profit, thousands of UAH |
Conditional
symbol of periods ti |
ti2 |
yiti |
yiti2 |
ti4 |
Calculated net
profit Ỹ= a0+a1t +a1t2 thousands of UAH |
(Y - Ỹ)2 |
2007 |
55955 |
-5 |
25 |
-279775 |
1398875 |
625 |
214485,65 |
25131967100,28 |
2008 |
108605 |
-4 |
16 |
-434420 |
1737680 |
256 |
67100,37 |
1722634375,29 |
2009 |
117619 |
-3 |
9 |
-352857 |
1058571 |
81 |
-21414,35 |
19330273092,81 |
2010 |
53217 |
-2 |
4 |
-106434 |
212868 |
16 |
-51058,51 |
10873382962,89 |
2011 |
49384 |
-1 |
1 |
-49384 |
49384 |
1 |
-21832,12 |
5071735389,28 |
2012 |
37627 |
0 |
0 |
0 |
0 |
0 |
66264,84 |
820125831,80 |
2013 |
207126 |
1 |
1 |
207126 |
207126 |
1 |
213232,36 |
37287574,38 |
2014 |
3843 |
2 |
4 |
7686 |
15372 |
16 |
419070,43 |
172413819263,22 |
2015 |
741229 |
3 |
9 |
2223687 |
6671061 |
81 |
683779,07 |
3300494947,14 |
2016 |
1248028 |
4 |
16 |
4992112 |
19968448 |
256 |
1007358,26 |
57921923684,35 |
2017 |
1344161 |
5 |
25 |
6720805 |
33604025 |
625 |
1389808,01 |
2083649885,84 |
Total |
3966794 |
х |
110 |
12928546 |
64923410 |
1958 |
3966794,00 |
298707294107,27 |
The calculation of the parameters of the equation is
carried out using the system of normal equations:
(7)
The specified equations of
the line are: a0 = 66264,84;
a1 = 117532,24; a2 = 29435.28. Accordingly, the parabola equation, which
characterizes the dynamics of obtaining net profit of PJSC “Iskra+”, is as
follows:
Ỹ= 66264,84 + 117532,24·t + 29435,28·t2
The anticipated net profit
for PJSC “Iskra+”, which will be received in 2018-2022, according to parabolic
dependence, are as follows (Table 4).
Таble 4: The anticipated net
profit received by PJSC “Iskra+” in 2018-2022
(parabolic dependence)
Year |
The anticipated of net profit, thousands of UAH |
2018 |
1831128,33 |
2019 |
2331319,20 |
2020 |
2890380,63 |
2021 |
3508312,62 |
2022 |
4185115,17 |
Thus, according to the specified trust interval, it can
be assumed with a probability of 95 % that in 2020 the net profit of PJSC “Iskra+”
may not be less than 4072726,43 thousand UAH, but the net profit will not be
higher than 4297503,92 thousand UAH.
Since the average square
of deviations in the function of polynomials of the second order (193231,50) is
less than the square of the deviations of the linear function (340279,15), the
parabolic dependence ensures greater reliability of the received prediction
series. At the same time, the parabolic dependence gives a high level of
relative error of the performed calculations (53,58%).
Since the dynamics of net
profit of PJSC “Iskra+” has significant fluctuations, which approximation
cannot predict, and the dynamic series has a relatively small length. The
methods of adaptive modelling and forecasting should be used to obtain more
accurate predictive values.
The basis of adaptive
methods is based on the model of exponential smoothing, the possibility of
using it for forecasting was proved by R. Brown (EFIMOVA, PETROVA, RUMYANTSEV,
1998).
The analytical alignment
of the dynamic series by the method of adaptive modelling and forecasting is
presented in Table 5.
Таble 5: Alignment of the net
profit received by PJSC “Iskra+” in 2002-2011(adaptive modelling)
Years |
Actual net
profit, thousands of UAH |
S1t(y)
= αSt(y) + (1-α)·S1t-1(y) |
S2t
(y) = αS1t(y) + (1-α)·S2t-1(y) |
a0
= S1t(y) – S2t
(y) |
a1=
α/(1 – α)·(S1t(y) – S2t (y)) |
Calculated net
profit Ỹ= a0+a1 thousands of UAH |
1 |
2 |
3 |
4 |
5 |
6 |
7 |
2002 |
55955,00 |
х |
х |
х |
х |
х |
1 |
2 |
3 |
4 |
5 |
6 |
7 |
2003 |
108605,00 |
132242,50 |
170532,46 |
93952,54 |
-8040,89 |
85911,65 |
2004 |
117619,00 |
115696,25 |
132147,11 |
99245,39 |
-3454,68 |
95790,71 |
2005 |
53217,00 |
117042,18 |
121573,66 |
112510,69 |
-951,61 |
111559,08 |
2006 |
49384,00 |
72364,55 |
87127,28 |
57601,82 |
-3100,17 |
54501,65 |
2007 |
37627,00 |
56278,17 |
65532,90 |
47023,43 |
-1943,49 |
45079,94 |
2008 |
207126,00 |
43222,35 |
49915,52 |
36529,18 |
-1405,56 |
35123,62 |
2009 |
3843,00 |
157954,90 |
125543,09 |
190366,72 |
6806,48 |
197173,20 |
2010 |
741229,00 |
50076,57 |
72716,53 |
27436,62 |
-4754,39 |
22682,23 |
2011 |
1248028,00 |
533883,27 |
395533,25 |
672233,29 |
29053,50 |
701286,80 |
2012 |
1344161,00 |
1033784,58 |
842309,18 |
1225259,98 |
40209,83 |
1265469,82 |
2013 |
1399420,29 |
1251048,07 |
1128426,41 |
1373669,74 |
25750,55 |
1399420,29 |
2014 |
1437121,67 |
1354908,63 |
1286963,96 |
1422853,29 |
14268,38 |
1437121,67 |
2015 |
1458012,01 |
1412457,76 |
1374809,62 |
1450105,90 |
7906,11 |
1458012,01 |
2016 |
1469587,34 |
1444345,73 |
1423484,90 |
1465206,57 |
4380,78 |
1469587,34 |
2017 |
1476001,24 |
1462014,86 |
1450455,87 |
1473573,85 |
2427,39 |
1476001,24 |
The smoothing factor is chosen based on the relative
value of the actual data and is α = 0,7. The exponential average k order is
defined as follows:
(8)
The polynomials factor
used for forecasting is determined by the aligned values of the series and for
the linear model as follows:
(9)
The obtained parameters
using the analytical equalization for the direct was used to calculate the
indicators of the system of equations. The obtained values of the parameters of
the equation are: a0 = 360617,64; a1 = 117532,24. The model of R. Brown was
used to obtain the values of fluid average indicators:
(10)
The anticipated values of
net profit for PJSC “Iskra+”, which will be received in 2018-2022, according to
the methods of adaptive modeling and forecasting, accordingly taking into
account the time value of information about the net profit received by PJSC
“ХХХ” and unstable conditions the passage of economic processes, are as follows
(Table 6).
Таble 6: The anticipated net
profit received by PJSC “Iskra+” in 2018-2022 (adaptive modelling)
Years |
The anticipated of net profit, thousands of UAH |
2018 |
1399420,29 |
2019 |
1437121,67 |
2020 |
1458012,01 |
2021 |
1469587,34 |
2022 |
1476001,24 |
Average annual net profit |
1448028,51 |
In our opinion, the level of anticipated profit, obtained
by adaptive modeling and forecasting methods, most adequately reflects the
dynamics of changes in the indicator of net profit of PJSC “Iskra+” with a
prevailing account of the trends of the last five years and is based on the
calculations carried out in an unstable economic environment.
The obtained net profit
values are taken into account in the model for determining the market value of
the enterprise. The amount of anticipated net income is compared for each
forecast year with the rate of return on alternative risk-free financial
investments. This indicator is also used to calculate the level of return on
capital.
Thus, taking into account
the above calculations and proposals, the procedure for determining the market
value of the enterprise for PJSC “Iskra+” will be the following (Table 7).
According to the proposed
concept for determining the enterprise value, the calculation is based on the
net assets value at it fair value plus a five-year excess of the anticipated discounted
net profit over the level of return on alternative risk-free investments. The
obtained value of the market value of the enterprise is adjusted to the level
of activity risk taking into account factors of macro-, mezzo- and
micro-environment.
The resulting market value
of PJSC “Iskra+” as the amount of adjusted value of net assets at the end of
the reporting period and the discounted difference between net profit and cost
of equity is UAH 6 566 225,58 thousand. The resulting market value should be
adjusted to the degree risk of manifestation the factors of generation /
destruction of value.
The evaluation of risk
factors for adjusting the value of PJSC “Iskra+” with the use of an expert
method involves the analysis of macro-, mezzo- and microeconomic factors (Table
8).
Accordingly, the general
corrective indicator the risks of economic activity of PJSC “Iskra+” is -0.297
or -29.7%. Adjusting the market value of an enterprise, taking into account the
risk activity indicator, allows obtaining an appropriate value for market
value:
= (4 356 467,00 + 2 209 758,58) · (1 – 0,297) = 6 566
225,58 · (0,703) =
= 4 616 056,58 thousands of UAH
The exclusion from the
market value of the enterprise the net assets value, taking into account the
above suggestions, allows you to determine the value of the intellectual
capital:
ІC = MV – NA (11)
where MV – the market value of enterprise, thousand UAH;
NА – adjusted fair value of net assets of the enterprise, thousand UAH;
IC – calculated value of the intellectual capital of the enterprise,
thousand UAH.
ІC = MV – NА = 6 566 225,58 – 4 356 467,00 = 2 209 758,58
thousand UAH.
The indicated difference
in the market value of PJSC “Iskra+” and the net assets value reflects the
unaccounted amount of intellectual capital in the composition of human capital,
organizational capital and client capital.
These calculations confirm
the hypothesis that the value of intellectual capital can be determined only in
the aggregate of its components, since each of it determines the incurred
expenses of different nature.
The calculation of the
market value of PJSC “Iskra+” and the determination of the value of its
intellectual capital is evidence of the implementation of an effective strategy
for the development of the enterprise, taking into account the development of
human capital, organizational capital and client capital.
5. CONCLUSIONS AND RECOMMENDATIONS
The proposed concept for
determining the market value of the enterprise provides a reliable and reasoned
calculation of value indicators based on the data of the accounting system for
both profitable and unprofitable enterprises. The basis of the enterprise’s
value is the net asset value at it fair value plus the five-year excess of the
projected discounted net profit over the level of return on alternative
risk-free investments. The determined market value of the enterprise is
adjusted to the level of activity risk taking into account factors of macro-,
mezzo- and micro-environment.
Conceptual differences in
determining the market value of the enterprise from other approaches are:
a) the use of the net assets
indicator for it fair evaluation at the end of the reporting period (as opposed
to the value at the beginning of the reporting period or the average annual
value). The determination of fair value carried out in the accounting system
for various types of noncurrent and current assets and liabilities using
specific methods of cost, income and market approaches;
b) the amount of additional
profit provided by the synergetic interaction of the components of intellectual
capital is determined as the discounted difference between the forecast net
profit and the alternative return on capital for 5 years of the forecast year;
c) the value of capital is
determined by the level of yield of domestic state bonds denominated in the
national currency, which reflects the lowest level of risk of investments;
d) the return on equity is
determined on the basis of the calculated net assets value in the forecast period,
taking into account the financial results received in previous periods;
e) the determined market value of
the enterprise is adjusted to the level of activity risk taking into account
factors of the macro-, mezzo- and micro-environment.
Таble 7: The calculation of
market value of PJSC “Iskra+”
Indicator |
The order of
calculation |
Year |
|||||
2017 |
2018 |
2019 |
2020 |
2021 |
2022 |
||
Net financial result: actual profit (loss), thousand UAH |
The form No.
2, line 2350 (2355) |
1344161,00 |
х |
х |
х |
х |
х |
Net financial result: anticipated profit (loss), thousand UAH |
adaptive modeling |
х |
1399420,29 |
1437121,67 |
1458012,01 |
1469587,34 |
1476001,24 |
Return on Capital (ROC), % |
ROC
= EBIT (1 – T) / (BE), where BE – book value of
capital |
30,85 |
32,12 |
28,20 |
25,95 |
24,45 |
23,36 |
Value of capital, % |
according to official yield of domestic state bonds in 2018[1] |
х |
12,94 |
12,94 |
12,94 |
12,94 |
12,94 |
Net asset value, thousand UAH |
calculated value, determined at the end of the year, taking into account
discounted financial results for the previous year |
4356467,00 |
4356467,00 |
5096411,63 |
5617553,91 |
6011122,95 |
6319254,11 |
Discount rate, % |
(1+re)t,
where re – value of capital, t – a sign of time |
х |
112,94 |
127,55 |
144,06 |
162,70 |
183,75 |
Discounted difference between net profit (loss) and value of capital,
thousand UAH |
|
х |
739944,63 |
521142,28 |
393569,04 |
308131,16 |
246971,47 |
Таble 8: The evaluation of risk factors for adjusting
the market value of PJSC “Iskra+”
No. |
Groups and types of
factors |
Significance of
factor |
Evaluation of experts |
Average Evaluation |
Adjustment Factor |
|||||||||
internal experts |
external experts |
|||||||||||||
Financial Director |
Director of
Production |
Director of Corporate
Rights and Investment Projects |
Marketing Director |
Technical Director |
Director of Quality |
Director of Human
Resources Management |
Analyst of Rating Agency |
Head of analytical
department of the bank |
Professional
Appraiser of Consulting Company |
|||||
1 |
2 |
3 |
4 |
5 |
6 |
7 |
8 |
9 |
10 |
11 |
12 |
13 |
14 |
15 |
MACRO-ENVIRONMENT FACTORS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
State support of the aircraft industry (until 2022) |
0,06 |
0,01 |
0,01 |
0,02 |
0,02 |
0,01 |
0,01 |
0,01 |
0,04 |
0,02 |
0,03 |
0,02 |
0,001 |
2
|
Uncertainty of the regulatory environment,
contradictory legislation |
0,08 |
-0,24 |
-0,22 |
-0,22 |
-0,25 |
-0,21 |
-0,20 |
-0,20 |
-0,23 |
-0,22 |
-0,26 |
-0,23 |
-0,018 |
3
|
Reduction of investment activity in the country |
0,15 |
-0,45 |
-0,42 |
-0,48 |
-0,49 |
-0,41 |
-0,40 |
-0,48 |
-0,44 |
-0,46 |
-0,44 |
-0,45 |
-0,067 |
4
|
Inflation loss cost the value of capital |
0,05 |
-0,12 |
-0,11 |
-0,13 |
-0,11 |
-0,12 |
-0,11 |
-0,11 |
-0,12 |
-0,12 |
-0,13 |
-0,12 |
-0,006 |
5
|
Fluctuations of exchange rates |
0,09 |
0,01 |
0,01 |
0,02 |
0,01 |
0,01 |
0,01 |
0,01 |
0,02 |
0,03 |
0,02 |
0,02 |
0,001 |
6
|
Budget financing of activity |
0,04 |
0,02 |
0,03 |
0,01 |
0,01 |
0,02 |
0,01 |
0,01 |
0,01 |
0,01 |
0,01 |
0,01 |
0,001 |
MEZZO-ENVIRONMENT FACTORS (heavy industry – machine
building) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7
|
Ability to lose consumers due to low demand for products in the
domestic market |
0,16 |
-0,61 |
-0,60 |
-0,61 |
-0,68 |
-0,66 |
-0,68 |
-0,65 |
-0,61 |
-0,62 |
-0,64 |
-0,64 |
-0,102 |
Orientation of sales to international markets |
0,11 |
-0,46 |
-0,47 |
-0,51 |
-0,50 |
-0,47 |
-0,48 |
-0,46 |
-0,51 |
-0,52 |
-0,53 |
-0,49 |
-0,054 |
|
9
|
High level of industry competition in international markets |
0,06 |
-0,75 |
-0,77 |
-0,76 |
-0,77 |
-0,72 |
-0,70 |
-0,71 |
-0,70 |
-0,72 |
-0,74 |
-0,73 |
-0,044 |
10
|
The complexity of the industry and the increased requirements for the
qualification of the workforce |
0,03 |
-0,03 |
-0,05 |
-0,02 |
-0,01 |
-0,02 |
-0,04 |
-0,03 |
-0,02 |
-0,01 |
-0,03 |
-0,03 |
-0,001 |
MICRO-ENVIRONMENT FACTORS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11
|
Availability of cooperation with international companies |
0,06 |
-0,05 |
-0,03 |
-0,05 |
-0,06 |
-0,02 |
-0,04 |
-0,02 |
-0,02 |
-0,03 |
-0,04 |
-0,04 |
-0,002 |
12
|
Use of credit resources |
0,01 |
-0,01 |
-0,01 |
-0,02 |
-0,01 |
-0,01 |
-0,01 |
-0,01 |
-0,01 |
-0,03 |
-0,02 |
-0,01 |
0,000 |
13
|
Compliance production with quality standards |
0,07 |
0,01 |
0,02 |
0,01 |
0,01 |
0,02 |
0,02 |
0,01 |
0,02 |
0,01 |
0,02 |
0,02 |
0,001 |
14
|
Investment losses when investing in corporate securities of enterprise |
0,01 |
-0,01 |
-0,01 |
-0,02 |
-0,01 |
-0,01 |
-0,01 |
-0,01 |
-0,02 |
-0,02 |
-0,01 |
-0,01 |
0,000 |
15
|
Liquidity losses as a result of the impossibility to selling assets
due to deterioration of market conditions |
0,02 |
-0,32 |
-0,34 |
-0,30 |
-0,38 |
-0,36 |
-0,36 |
-0,34 |
-0,31 |
-0,36 |
-0,38 |
-0,35 |
-0,007 |
|
The general indicator the risk of evaluation the
value of the enterprise |
-0,297 |
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