Abstract
In the modern world, the terms enterprise value and valuation are of great importance. Knowledge about how much an enterprise is worth is of fundamental importance for both the owner of that company and investors when negotiating the price of an enterprise at the time of conducting a commercial transaction. The article presents the goals of the company’s valuation and characteristic stages of the company’s life at which such valuation is necessary. The article classifies the methods of enterprise valuation used today. On this basis, the valuation methodology is presented according to the MDI-R concept (Assets, Income, Intellectual Capital-Market), which in a broad spectrum measures the effectiveness of the company’s operations and, in accordance with the current features of good valuation, aims to determine the fair value of the company. The purpose of the article is to demonstrate the need to improve the code of conduct and valuation standards. As part of the implementation of the objective, multi-faceted and complex valuation issues are presented, as well as factors that may distort the determination of fair value. The methodology of the study is based on inferences about the methodology of business valuation, and verification is based on practical examples, by which a hypothesis on the existence of critical elements of valuation is verified that allows the use of broad subjectivity in estimating the value of assets. At the same time, the factors that determine the possibility of the existence of too wide a subjectivity in estimating assets, which is in contradiction with the features of good valuation, are presented. The attempt is made to draw attention to the threats arising from modern business valuation methodologies and their challenges in the future. Additionally, this article offers the authors’ proposed hybrid method MDI-R, which draws from existing solutions to improve their functionality and applicability.
Highlights
The term “enterprise” or “company” can be understood as a separate economic entity, an economic entity producing and selling on its own account goods and services with the goal to maximize profits
Within the framework of the conducted analysis, in terms of the new approach, the reasons for the contemporary crisis of confidence in the business valuation process were presented, including problems and risks occurring in asset-based methods, which, according to the subject literature, are the oldest and most objective foundations for the valuation of a company’s assets
Through the prism of the analysis and classification of asset-based business valuation methods used in practice, it was shown that the adjusted net assets valuation method is currently the best solution, which is confirmed by the fact that it is the basis for all valuations in economic practice
Summary
The term “enterprise” or “company” can be understood as a separate economic entity, an economic entity producing and selling on its own account goods and services with the goal to maximize profits. The lack of uniform regulations is primarily due to the fact that it is not possible to fully codify a process that may relate to entities with different specificities, legal forms, assets or ownership structures. In many countries of the world, for many years, there have been standards for business valuation [3] They relate to the methodology of valuation and the range of expertise that the valuator must have. Experts are bound by codified procedures and standards of conduct, which guarantee the comparability of valuations and ease of their verification. Such a situation contributes to the security of business transactions
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