Valuation Of Enterprises

What is Business Valuation?

Enterprise valuation is widely understood and recognized as:

– Investigate and analyze in detail activities, assets, debits

– Evaluate the activities, assets, liabilities of the company

Determine the current and potential value of a business.

Why Business Valuation?

Value is the first thing people want to know when learning about a product. If you are a business owner, you know how much your company assets are worth, but you don’t know the market value of your business, you are missing out on something very important.

The business valuation brings many benefits to the owner: protecting the business; know the ability of enterprises to adjust to improve “efficiency” in business, production… Most importantly, business valuation is an important basis for enterprises to attract capital from financial investors. main.

Enterprise valuation comes from the requirements of business acquisition, merger, consolidation or division. This type of transaction takes place regularly and is common in the market mechanism. Especially in the current context of active M&A activities, business valuation becomes even more important.

In order to make such transactions, a wide-ranging assessment of the factors affecting the business is required. In which, enterprise value is a decisive factor, which is a direct basis for people to negotiate with each other in the process of transaction of purchase, sale, merger, consolidation, and division of enterprises.

From the perspective of investors, the business valuation certificate is an overall assessment of business reputation, financial capacity and credit position. From there, they have a basis to make decisions about investment, financing or continuing to grant credit to businesses.

Appraisal object

Enterprise valuation is widely understood and recognized as:

• Detailed investigation and analysis of activities, assets, debits
• Evaluate the activities, assets, and liabilities of the company
• Determine the current and potential value of a business

Appraisal purpose

• The company has been preparing for equitization
• It is expected that there will be significant changes in the ownership or capital structure of the  company: merger, joint venture, association, capital transfer, purchase and sale of company or business franchise…
• Preparing to issue bonds for the first time to the public
• On the way to developing and expanding the scale of operations, or having a change in the organization of production and business activities

Appraisal records

Certificate of business registration
The tax registration certificate
Decision on establishment of affiliated units
Minutes of capital contribution, association, capital contribution and establishment of company

The enterprise valuation process complies with the price appraisal process in the Valuation Standard No. 05 promulgated under the Decision No. 24/2004/QD-BTC dated October 7, 2005 of the Ministry of Finance.

In general, the business valuation process is similar to the valuation process of other assets, but the specific content of the steps needs to be tailored to the business valuation.

The business valuation process includes 6 steps:

1. Identify the problem

In this step it is necessary to pay attention to the following issues:

1.1. Set Appraisal Purpose

1.2. Preliminary identification of businesses that need valuation: legal , type, scale, location, facilities, branches, assets, products, brands, markets, etc.

1.3. Determining the value basis of the appraisal

1.4. Determine the documents required for the appraisal

2. Make a price appraisal plan

– The valuation plan is to clearly define the steps work to be done and the time to perform each step work as well as the entire time for the appraisal.

– The content of the plan must show the following basic tasks: Determine the supply and demand factors appropriate to the function, characteristics and rights associated with the business being traded and the characteristics of the market; Identify documents to be collected about the market, the enterprise, and comparative documents; Identify and develop documentation sources, ensure resources are reliable and verifiable; Develop the research schedule, determine the order of data collection and analysis, and the allowable time limit for the order to be performed; Prepare an outline for a report on valuation results.

3. Research the business and collect documents

In this step it is important to note:

Actual survey at the enterprise: inventory of assets, survey of the actual production and business situation of the enterprise.

Collecting information, first of all, information and documents from inside the enterprise: Documents on production and business situation, financial – accounting – audit reports, system of production units and agents , characteristics of the executive management team, employees, workers, etc. In addition, we also pay attention to collecting information outside the enterprise, especially the product market of the enterprise, the business environment, the business industry. , competitors, government policy, etc. The appraiser should take the necessary steps to ensure that all data sources on which it is based are reliable and suitable for the appraisal. It is common market practice for the appraiser to take reasonable steps to verify the accuracy and reasonableness of the sources.

4. Assess the strengths and weaknesses of the business

It is necessary to evaluate the strengths and weaknesses of the enterprise in the following aspects: production and business, equipment, technology, skills of employees, management apparatus and management capacity, debt capital, financial indicators. market, business environment.

5. Determining valuation methods, analyzing data and documents and estimating enterprise value.

Appraisers and business valuations based on the opinions, results work of other appraisers or other professionals are necessary when valuing a business. A common example is relying on real estate appraisal results to value real estate assets owned by businesses. When relying on the opinions and results of other appraisers or other experts, the business valuer should take steps to ensure that the services are performed in a professional manner. reasonable and reliable conclusions.

6. Report preparation and valuation report preparation

The preparation of reports and preparation of business appraisal reports is similar to that of other assets. The report on enterprise valuation results must clearly state:

6.1. Valuation purposes

6.2. The subject of valuation must be clearly described:

It is necessary to clearly state that the object of valuation is the entire enterprise, the enterprise’s interests or a part of the enterprise’s interests, which belong to the whole enterprise or to separate properties owned by the enterprise. Description of the valuation enterprise, including the following:

* Type of business organization

* Business history

* Outlook for the industry’s economy

* Products, services, markets and customers

* Sensitivity to seasonal or cyclical factors

* Competition

* Manufacture

* Assets include tangible and intangible assets

* Human

* Manage

* Owned

* Prospects for businesses

* Past transactions of similar ownership interests in the business.

6.3. Valuation basis of value: definition of value must be stated and determined

6.4. Method appraisal

Valuation methods and reasons for applying them; calculations and logic in the application of one or more valuation methods; derived from variables such as discount rates, capitalization rates or other appraisal factors; arguments for aggregating different valuation results for a single value result.

6.5. Valuation assumptions and constraints, and important premises and assumptions for value must be stated.

6.6. State the reason for applying in the report

If there is a certain aspect of the appraisal work that requires application to the provisions of the standards or guidelines that such application deems necessary and appropriate.

6.7. Financial analysis

* Summarize the summary of assets and income statement for a certain period in accordance with the purpose of valuation and the characteristics of the business.

* Adjustments to the original financial data (if any).

* Basic assumptions for the formation of the balance sheet and income statement.

* Financial performance of the business over time and comparison with similar businesses.

6.8. Result of valuation

6.9. Scope and time limit for valuation

6.10. Signature and confirmation
The appraiser who signs the valuation report is responsible for the contents implemented in the report.

Excerpted from: Short-term training document for specialized knowledge in price appraisal of the Department of Price Management – Ministry of Finance