On valuation of companies of the methanol industry using the discounted cash flow method

Abstract

Subject. The article deals with the valuation of companies operating in the methanol industry. Objectives. The purpose is to present an algorithm for company valuation in the methanol industry, to describe possible errors that may occur in the evaluation process, to estimate the value of PAO Metafrax. Methods. To estimate the company value, we apply the Free Cash Flow to Firm method (FCFF). When estimating the discount rate, we use the Weighted Average Cost of Capital (WACC) approach. Results. We conducted the valuation of PAO Metafrax, being a typical representative of the methanol industry. The paper unveils the specific factors that form the value of companies in the methanol industry, describes the algorithm for forecast generation of company's free cash flows, and estimates the discount rate. It defines the final value of PAO Metafrax, considering the factors that form the value in the post-forecast period, and includes methodological and practical information on cash flow modeling for the purpose of company valuation. The study has practical application for valuation of any company operating in the methanol industry, and will be useful for appraisers, students of higher educational institutions majoring in relevant disciplines. Conclusions. The reliability of valuation results will mainly depend on the preliminary analysis of industry factors, correct choice of information base, and a clear understanding of methodology for company's free cash flow forecasting.