Going business appraisal
Going Business Appraisal
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What is a going concern appraisal?
A Going Business Appraisal It allows obtaining the value of the business taking into account current fixed assets, liabilities, personal brand, technology, among others, as well as the entire environment of the company in economic and technical matters.
The purpose of this appraisal is to carry out a valuation study of the company as a going concern, that is, taking into account the valuation methodology through discounted cash flows attributed to the business to be studied, reduced by a correct rate of discount, this study also includes carrying out the commercial appraisal of the fixed assets which are property of the organization, refers to the minimum cost that the company would have as a going concern, aspects such as freight, labor, import expenses, engineering, installation are evaluated, also taking into account the physical state, the obsolescence, maintenance, productivity, market situation, among other aspects, thus determining the total cost of the company's fixed assets.
A going concern is an economic entity that will continue to exist and operate into the estimated future. A commercial entity or an economic entity operates and provides economic benefits, this definition is based on the assumptions that support NIF A-2 (financial reporting standard).
The concept of going concern already takes into account the valuation of the company, determining it as a business with continuous operation at present value (discounted flows)., that is, the financial value of an asset is favored during a period of life that has no end, in order to make an appropriate assessment of its value, an analysis of the assets must be carried out, considering them as a whole as well as the of greater value for the organization and make a re-valuation that allows appropriately determining the value updated to VR, depending on the purpose of the company and how sophisticated the method is.
This study may contain different categories of values, such as; the liquidation value, such as “operating independently”, “fair value”, “strategic or investment value”, These studies are used based on the organization's own situation, the problems of the majority shareholders, or a sector company that wants to acquire a competitor through strategic decisions or absorption or destruction of competition.
That is, it is necessary to have the ability to evaluate and understand the organization's past, its current environment and the future, subject to the global economy, purpose and/or sector.
What is the scope of a going concern appraisal?
It involves performing a going concern evaluation, considering discounting at an appropriate rate using the discounted cash flow valuation method applicable to the investigated entity. This investigation also includes performing a commercial valuation of the fixed assets owned by the entity, which It is the minimum value that would be given to the company as a going concern.
The purpose that is expected to be achieved is to carry out an analysis and determine its level of risk by identifying the various factors that are critical to the success or failure of an investment or capital formation, an evaluation of multiple scenarios and a sensitivity analysis must be carried out. , a more precise focus on performance itself generally depends on the purpose of the evaluation itself.
Method for carrying out a going concern appraisal
Based on the answers to the following questions, a valuation method for the project will be determined.
- What will be evaluated?
- What business or product will be evaluated?
- What is the purpose of business valuation?
- What approach is required for valuation?
- What is the sector to which the company belongs?
- Is there public or private information about the sector?
Forecasting the value of an organization requires evaluating its behavior over the life of the company, the behavior of other companies in the industry, the trends of leading companies in the industry, and the estimates of analysts belonging to leading companies.
For these studies, account standardization can be used to more sensitively predict the need for the evaluation's own effects, to the extent that intragroup commitment adjustments may occur, or to adopt other cross-sector behavioral practices that should be added to the evaluation. itself, so that all recipients of this report know what has been developed in the research development process.
Most common methods used for going concern/financial options:
The most common and widely used method to value an ongoing business is to look at the “Discounted Cash Flows (FCFF and FCFE)” if it is a start-up, changes or affects the business first through technological processes, innovation or directly. an effect that can be estimated many times in these cases. For financial options, the most common method is Black & Scholes.
The objectives of determining the value of a company can be classified as:
- Mergers
- Share Restructuring
- Valuation of Listed Companies
- Identification and prioritization of Value Drivers
- Strategic business continuity decisions
- Spin-offs
- Acquisitions
- Change of series in Shares
- Testamentary Successions
- Buy and sell
Other cases of need for a going concern appraisal:
There are not so common cases to want the valuation of a going concern and in those situations it is used the cost method, we list some examples:
- Real estate
- Capital intensive industries
- Some financial institutions
- Losses or few profits as an economic entity (commercial bankruptcy)
The market method Also used when it is necessary to acquire according to operations with similarities in a common sector, this often contains an intrinsic value just to go along with a strategic value, so an analysis of the trajectory of the same operation has to be carried out.
ANEPSA GLOBAL
With Anepsa Global it is possible for this and other types of appraisals to be carried out, contact us by leaving your information or sending a message through our social networks, we are here to provide you with advice and guide you so that you know what type of appraisal is best for you.
