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Evaluation of Enterprises

Course developer

Prior knowledge

Ekon2109, Macroeconomics

Ekon3091, Management Accounting

Ekon4102, Financial Accounting

Mate2023, Mathematics for Economists

VadZ3029, Analysis of Economic Activities

Course abstract

Valuation of an enterprise is one of the most significant processes related with the change in the structure of the company owners. Therefore, the course helps understand the value forming factors and opportunities for increasing the value, the valuation process, types and components and basic principles of the valuation report as well as it introduces with the valuation of intangible assets and real estate. The students acquire essential knowledge on the valuation approaches and methods which allow choosing the most appropriate ones considering the value affecting factors as well as the fundamentals of the valuer’s code of ethics.

Learning outcomes and their assessment

1. Knows and understands the evaluation process, approaches and methods. Knows the content of the information describing the company operation and the purpose of evaluation. Knows the process of brand development and value determination - independent work.
2. Knowledge of information reliability, types of values and factors affecting the value - discussion in class.
3. Knowledge and understanding of money value in time, calculation of interest and discount rates - test with calculations.
4. Knowledge of business valuation using three valuation approaches and methods: asset-based approach, market value approach and earning value (income) approach - test with calculations.
5. Able to determine the value of money over time and calculate company value using a variety of approaches and methods. Students are able to analyse the results, understand the causes for value changes and draw conclusions. Understands the process of valuation of intangible assets, is able to determine the cadastral value of real estate - tests with calculations, calculations in classes.
6. Able to solve various tasks independently, cooperate in a group with colleagues to get the information they need and produce a report identifying the value of the company and incorporating opportunities to increase the company value - independent work, group work, discussion in class.
7. Students are able to present the process of determining the value of a company and justify it as well as create a presentation on brand - independent work, group work, presentation.
8. Able to plan tasks responsibly - independent work.
9. Able to engage and take responsibility for group performance and analysis. Students are able to present the results of independent work - group work, report and presentations.

10. Ability to apply the acquired theoretical knowledge and practical skills in business valuation methods, understanding their advantages and disadvantages as well as the peculiarities of application of valuation methods, taking into account the specific type of commercial activity and business environment - independent work, group work, tests, report, presentations.

Course Content(Calendar)

1. Importance and necessity for company (property) valuation. Company values, their types and valuation goals (lectures - 1 h)
Importance and necessity for company (property) valuation. Evaluation process, subject, object and objectives. Company (property) values, their types depending on the valuation situation.
2. Standards regulating the valuation of companies (lectures - 1 h)
International Valuation Standards. European Valuation Standards. Latvian National Valuation Standard. Evaluation methodology and methodological guidance. Code of Ethics of the Latvian Association of property Appraisers.
3. Principles of valuation of companies (lectures - 1 h)
Valuation principles based on owner’s perceptions. Principles based on the use of property. Principles defined by the market environment.
4. Evaluation stages and compulsory components of assessment report (lectures - 2 h)
Evaluation procedure. Factors influencing the company value. Types of evaluation reports. Mandatory components of the valuation report.
5. Value of money in time. The essence of discounting (lectures - 1 h, practical work - 3 h)
Calculation of simple and compound interest. The essence of discounting. Calculation of simple and compound discount.
6. Analysis and correction of the company's financial statements (lectures - 1 h, practical work - 1 h)
Methodology of financial analysis. Analysis of the balance sheet and the profit or loss statement. Cash flow analysis and planning. Calculation of financial ratios and interpretation of results. Cash flow analysis and planning. Calculation of financial ratios and interpretation of results.
7. Approaches and methods of company valuation (lectures - 1 h)
Methods of company valuation and description of their application cases. Application of "test measurements". Bonuses and discounts on controls.
8. Asset-based approach. Its basic principles and advantages (lectures - 1 h, practical work - 1 h)
Net asset valuation method. Method of liquidation.
9. Market value approach. Basic principles and possibilities of its use (lectures - 1 h, practical work - 2 h)
Transaction or sales method. Profit and cash flow multipliers. Industry coefficient method. Public company comparables method.
10. Earning (income) value approach. Its basic principles and use (lectures - 2 h, practical work - 2 h)
Capitalisation of earnings method. Discounted earnings method. Determination of discount and capitalisation rates.
11. Intangible assets, their role in the value structure of a company (lectures - 1 h, practical work - 1 h)
Classification of intangible assets. Trademarks, brands, licenses and patents. Type of goodwill - franchise.
12. Methods of valuation of intangible assets (lectures - 2 h, practical work - 1 h)
Applying the asset-based approach for the valuation of intangible assets. Using the market value approach. Applying the earnings value approach. Intellectual property valuation.
13. Real estate valuation (lectures - 1 h, practical assignments - 1 h)
Cadastral valuation. Applying the asset-based approach. Using the market value approach. Applying the earnings value approach.
14. Valuation of a company (practical work - 4 h)
Developing a company valuation report. Preparation of evaluation conclusions and final report.

Requirements for awarding credit points

1. Value of money in time. Calculation of simple and compound interest. The essence of discounting – test with calculations (20%).
2. Company valuation using three valuation approaches and methods: asset-based, market and earnings – test with calculations (30%).
3. The process of creation, development and value of the chosen brand - team work (15%).
4. Evaluation report of the selected company, which includes the characteristics of the company and the industry, the value of the company and the opportunities for the increase of value – group work (30%).
5. Activity in classes (5%).

At the end of the study course, a test with a mark consisting of a cumulative assessment of the learning outcomes (100%).

Description of the organization and tasks of students’ independent work

Getting ready for practical assignments and presentation of the selected brand. Individual or group assessment of the selected company by developing and presenting a report on the company valuation.

Criteria for Evaluating Learning Outcomes

All assignments shall be completed. Every assignments is graded. The evaluation of the study course depends on the evaluation of independent and practical assignments (tasks), 10% corresponds to one point on a 10-point assessment scale.

Compulsory reading

1. Damodaran A. Damodaran on Valuation. 2nd edition. USA: John Wiley &Sons, 2006. 696 p.
2. Finanšu vadības rokasgrāmata. V. Jerošenko ... u.c. Rīga: Dienas Bizness, 2004.
3. Kurjanovičs V. Biznesa novērtējums: metodika un organizācija. Rīga: Merkūrijs Info, 2010. 189 lpp.
4. Uzņēmuma darbības novērtēšana. Rīga: SIA „Lietišķais informācijas dienests”, 2008. 179 lpp. Harvard Business Review.
5. Shanon P.P., Niculita A.V. Valuing the Business. 5th ed. USA: The McGraw-Hill, 2008. 1098 p.
6. Есипов В., Маховикова Г., Терехова В. Оценка бизнеса. 2-е изд. СПб.: Питер, 2006. 464 с.

Further reading

1. Baltruma D., Freibergs J. Nekustamā īpašuma vērtēšana. Rīga: Vieda, 1999. 99 lpp.
2. Freibergs J., Žuromskis V. Nekustāmā īpašuma vērtēšana (teorija un prakse). Rīga: SIA ,,Eiroeksperts”, 2013. 347 lpp.
3. Latvijas Īpašumu vērtēšanas asociācija. Īpašuma vērtēšanas standarti; LVS 401-0:2002 L, VSIA ,,Latvijas standarts”, 2002. gada maijs. Pieejams: https://www.vertetaji.lv/normativie-akti
4. Januška M. Firmas ekonomiskā stāvokļa analīzes metodika. Rīga: ZKC SIA „Inovācija”, 2002. 40 lpp.
5. Keith A. Allman K.A. Corporate Valuation Modeling: a Step-by-step Guide. N.J.: John Wiley, 2010. 304 p.
6. Koller T. Valuation: Measuring and Managing the Value of Companies. 6th edition. Hoboken, N.J.: John Wiley & Sons Inc., 2015. 825 p.
7. Vērtētāju ētikas kodekss, Latvijas īpašumu vērtētāju asociācija, 2006.
8. Коугленд Т., Коллер Т., Мудрин Дж. Стоимость компаний. Оценка и управление. Третье изд. Москва: Олимп-Бизнес, 2007. 554 с.
9. Щербаков В.А., Щербаков Н.А. Оценка стоимости предприятия (бизнеса). 2-е изд. Москва: Омега-Л, 2007. 288 с.

Periodicals and other sources

1. Business Week: nedēļas izdevums [tiešsaiste]. Bloomberg L.P. Businessweek ISSN 0007-7135. Pieejams: https://www.bloomberg.com/businessweek.
2. Dienas Bizness: nedēļas laikraksts: Latvijas biznesa avīze. Rīga: Diena: Dagens Industri, 2005. ISSN 1407-2041.
3. Financial Times: laikraksts [tiešsaiste]. England based finance newspaper. London: The Financial Times Ltd. Pieejams: http://www.ft.com/home/europe.
4. Forbes: žurnāls. Rīga: SK Media, 2010. ISSN 1691-6018.
5. Kapitāls: žurnāls lietišķiem cilvēkiem: krāsains biznesa un ekonomikas žurnāls. Rīga: Lietišķās informācijas dienests, 2005. ISSN 1407-2505.

Notes

Restricted elective study course for the specialisation direction “Accounting and Finance” of the academic Bachelor study programme “Economics”