Introduction to Valuation
Prof.univ.dr. Ion ANGHEL, FRICS, MAA
PURPOSE OF THE COURSE
– To develop knowledge and abilities for
business value estimation and interpreting
this in specific circumstances
Bibliography
Bibliography
• Financial Valuation, James HITCHENR,
second edition
• Professional standards (SEV 2022)
file:///C:/Anul%202021/My%20Study_2021/%23%2
0Curs%20evaluare%20Seria%20A%202022/Standar
de%20de%20evaluare%20ed%202022.pdf
• ANEVAR 2022, IVS 2020, EVS ....
Link uri utile
•
•
•
•
•
http://nou.anevar.ro/
http://reval.anevar.ro/revista-de-evaluare-arhiva
http://www.ivsc.org/
http://www.tegova.org/en/p48f7266103340
http://www.appraisers.org/Disciplines/BusinessValuation
• http://people.stern.nyu.edu/adamodar/
• https://www.bvresources.com/
• https://bvbresearch.ro/
1. INTRODUCTION
• TOPICS FOR TODAY ?
• This chapter introduced on
the valuation concepts and
techniques.
1. Why is important for financial analysis
Financial Statements
Other Public Data
- industry and firm data etc.
Business Application Context
-credit analysis (loan decision)
-securities analysis
-merger & acquisition analysis
-corporate communication strategy
-general business analysis
FINANCIAL ANALYST TOOLS
Business strategy analysis
-Generate performances
expectations through industry
analysis and competitive strategy
analysis
Accounting analysis
-Evaluate accounting quality
by assessing accounting
policies and estimates
Prospective analysis
-Make forecasts and value the
business
Financial analysis
-Evaluate performances using
ratios and cash flow analysis
Introduction
Chapter objectives:
• Understand the “value” concept;
• Use the analysis to estimate the market value of the
business;
• Valuation process.
Agenda
1.
2.
3.
4.
5.
6.
Introduction
Fundamental terms
Type of values
Professional Organizations
The role of valuation
Valuation Process
Recommendation
Hitchner, Chapter 1.
Valuation , p.1-25
Introduction
SEV 100 and 104 / IVS 104
to
Financial
3 factors which influence the value of this house
menti.com code 8994 5216
• https://www.digi24.ro/stiri/externe/un-orasdin-italia-vinde-sute-de-case-la-pretul-de-1euro-singura-conditie-pusa-cumparatorilor869579
1. Introduction
(1)
The value is not an intrinsec feature of an asset
because he is created in the peoples
mind
(2)
The value depends on the four economic factors:
• utility, the capacity of an asset to satisfy a specific need or
desire;
 scarcity, present and anticipated suply for an asset in comparison
with demand for that assets
 desire, the intensity of satisfaction created by an asset for the
owner or for the person who want to have that asset;
 power of purchasing, the capacity of an individual or group of
individuals to buy assets for money or equivlent
• (3)
the interaction among the four factors
defined above will create the “demand and
supply law”.
(4) the existence of an asset value depends on the
transferabilty of that asset (capacity to change
the asset into money or equivalent)
What is the value of this bridge (cost =1 mil.E,
(estimated life 20 years, age 5 years)
menti.com code 1933 3993
What is the market value Sucevita Monastery
chat response
The Map: Financial MarketSavings/
Economii
Financial interm/
Intermediarii
financiari
Information intermed/
Intermediarii de
informatii
Pension Funds, Insurance companies
Private Funds, other funds
Auditors/ Financial Analysts Rating
Agencies etc,
Business Ideas/
Idei de afaceri
18
What s your understanding ?
2. Fundamental terms
• property/ asset (real estate property versus
personal property);
•
•
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Business and Inatangibles
Real estate
Machinery & Equipment
Financial asset
price;
value;
cost;
market.
3. Type of values. Valuation standards
(IVS definitions)

market value

equitable (fair) value

investment value/ worth

synergistic value

liquidation value
SEV 104/IVS 104 Bases of Value
3. Type of values. Valuation standards
(Non IVS)

Fair Value IFRS

Fair value (legal/ statutory)

insurance value

mortgage lending value
See IVS, SEV 2
Market Value
• Market Value is the estimated amount for
which an asset or liability should exchange on
the valuation date between a willing buyer and
a willing seller in an arm’s length transaction,
after proper marketing and where the parties
had each acted knowledgeably, prudently and
without compulsion.
Equitable Value
• Equitable Value is the estimated price for the
transfer of an asset or liability between
identified knowledgeable and willing parties
that reflects the respective interests of those
parties.
Investment Value / Worth
• Investment Value is the value of an asset to
a particular owner or prospective owner for
individual investment or operational
objectives.
– Investment Value is an entity-specific basis of
value
Synergistic Value
• is the result of a combination of two or more
assets or interests where the combined value
is more than the sum of the separate values. If
the synergies are only available to one
specific buyer then Synergistic Value will
differ from Market Value, as the Synergistic
Value will reflect particular attributes of an
asset that are only of value to a specific
purchaser.
Liquidation Value
• is the amount that would be realised when an
asset or group of assets are sold on a piecemeal
basis. Liquidation Value should take into
account the costs of getting the assets into
saleable condition as well as those of the
disposal activity. Liquidation Value can be
determined under two different premises:
– an orderly transaction with a typical marketing period
– a forced transaction with a shortened marketing period
Fair Value (IFRS)
• IFRS 13 defines Fair Value as the price that
would be received to sell an asset or paid to
transfer a liability in an orderly transaction
between market participants at the measurement
date.
Mortgage Lending Value MLV
(EVS 2016, p.42-43)
• The value of immovable property as determined
by a prudent assessment of the future
marketability of the property taking into account
long-term sustainable aspects of the property, the
normal and local market conditions, the current
use and alternative appropriate uses of the
property.
Valuation for Compensation (EVS
2016, p.44)
• Where national or local government bodies
acquire property compulsorily in order to carry
out public interest schemes it is usual for the
owner (and the occupiers, if any) to receive
appropriate compensation payments. While
compensation for loss of property is often based
on Market Value, this principle may be modified
by national or local law and legal precedent.
4. PROFESIONAL ORGANISATIONS
• International Valuation Standard Committee
(founded in 1981)
• World Association of Valuers - WAVO
• The European Group of Valuer’s Association
(www.tegova.org)
• The Royal Institution for Chartered Surveyors
(founded in 1868 - Great Britain)
• The Appraisal Foundation (USA and Canada)
• Asociatia Nationala a Evaluatorilor din Romania ANEVAR (www.anevar.ro), founded in 1992.
Professional Designation
• American Institute of Certified Public Accountants (AICPA,
infiintat 1887) (calificare Certified Public Accountant - CPA) and
Accredited in Business Valuation (
ABV). http://www.aicpa.org
• American Society of Appraisers (ASA, 1936) : Accredited
Member (AM), Accredited Senior Appraiser (ASA),.
http://www.appraisers.org/
• National Association of Certified Valuation Analysts (NACVA)
(1991), certification for closely held companies Certified Valuation
Analyst (CVA). http://www.nacva.com/
Professional Designation (cont.)
• Institute of Business Appraisers (IBA), established 1978 , Certified
Business Appraiser (CBA). http://www.go-iba.org/
• Association for Investment Management and Research (AIMR) over
90.000 members = Certified Financial Analyst (CFA).
http://www.aimr.org/
• The Canadian Institute of Chartered Business Valuators (CICBV),
1971 the most important in Canada: Chartered Business Valuator
(CBV). https://www.cicbv.ca/
• ANEVAR 1992, MA, MAA, www.anera.ro
5. The role of valuation
• http://www.zf.ro/burse-fonduri-mutuale/un-fostbancher-un-medic-si-un-doctorand-in-psihiatrie-intrain-clubul-milionarilor-la-bursa-in-urma-listariimedlife-16034996
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• http://www.sport.ro/liga-1/explicatiile-lui-talpan-cuma-ajuns-marca-steaua-sa-coste-57-mil-euro-farastadion-si-fara-rezultatele.html
5. The role of valuation
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Privatization;
Merger and acquisitions (IFRS 3);
Spin off;
Litigation support;
Financial Reporting
In or out financial market (listed/ closed companies);
Financial institution needs;
Consulting companies;
Financial Management (management by value) etc
Valuer / Appraisal – liberal profession
Evaluator =
Studii
universitare +
Examen
acces la
profesie
+
Training
etică
profesional
ăa
Experienţa
Educaţie
Licenţiere
+ de lucru + continuă + (când este
cerută)
You can work “9 to 5” as a valuer
In Romania COR:
•
•
•
•
241701 – expert evaluator de întreprinderi
241702 – expert evaluator de proprietăţi imobiliare
241703 – expert evaluator de bunuri mobile
241704 – expert evaluator de active financiare
5. The role of valuation (cont.)
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• Shareholder oppression cases
• Allocation of purchase price
• Goodwill impairment
• Reorganizations and bankruptcies
• Recapitalizations
• Business planning
• Stock option plans
• Compensation
– Case Study MVA
Case 1 MVA
Case 2 MVA
Buyers and Sellers for firms
The market for shares
• Buyers
• Listed companies (long term investors, small risk,
strategic decisions, pay attention for his own shares
value after investment
• Closed companies (not necessary long term investors, is
important the cash- flow stream after investment);
• Management and employee (long term investors, small
companies, informed (inside) investors);
• Investment funds, other financial institution (insurance,
pension etc, no management implication, cash flow
potential above the average )
Sellers
• Listed companies;
• Closed firms;
• Government;
• individual investors;
• investment/ financial funds etc;
Market Value of DR. FISCHER
DENTAL S.A( DENT)
• https://bvb.ro/info/AeRO/Memorandum_Dr.Fisch
er_02.02_FINAL.pdf
• Plasament Privat 5,7 lei/actiune nov.2021
• https://www.bursa.ro/dr-fischer-dental-atragepeste-5-milioane-de-lei-printr-un-plasamentprivat-de-actiuni-intermediat-de-tradeville65519448
• Listare/tranzactionare 22.02.2022
6. Valuation Process
• Mission Definition.
• Data analysis (legal aspects, commercial,
operational, HR, financial)
• Approaches
• Valuer’s Opinion