Traditional Valuation Methods Research Articles

Specifičnosti procene vrednosti kapitala mladih preduzeća prinosnom metodom

The capital valuation of young companies differs from the assessment of mature and developed companies. Namely, some of these companies achieve business results that are negative or at a low level. Even when they can generate a higher level of profit, the history of their existence is short, it depends on the possibility of borrowing capital, which makes the assessment through the yield method significantly more difficult than usual. Regardless of the industry in which they operate, the sector, the production, and sales arrangement, and the degree of innovation, these companies face not only the usual risk but also the risk of survival and uncertainty that the future brings. In estimating the value of the capital of young companies, standardized and traditional valuation methods can be used, and thus the yield basis method. Regardless of the chosen method of assessment, the assessor faces a lack of information about the history of "existence". For this reason, for the assessment, all parameters involved in the capital evaluation process must be adjusted. The subject of this paper is capital valuation. The aim of this paper is to show how it is possible to estimate the value of capital using the yield method and to point out the specifics of this procedure. The object of this research are young companies. In this paper, we will first present the characteristics of young companies, and then the possibilities of estimating their capital by discounting cash flows as a type of yield basis method of capital valuation.

JUDICIAL EXAMINATION OF CRYPTOCURRENCY

This article considers a fundamentally new type of forensic objects – virtual assets. It is noted that currently in Ukraine there is no legislation governing the circulation of virtual assets. The concept of the term «cryptocurrency» is defined by the state bodies of Ukraine, the issues of the essence of cryptocurrency, the order of its circulation are investigated, the assessment of the current state of cryptocurrency in various aspects is given. An algorithm for identifying cryptocurrency and its owner during forensic examination of virtual assets is proposed. Methodological issues of cryptocurrency valuation are considered. It is noted that in the decentralized economy of digital assets, the loan interest rate is absent or works completely differently. The absence of refinancing rates and derived key rates in digital finance, as well as other regulatory instruments, is due to the lack of centralized monetary policy institutions for cryptocurrency. It has been found that the application of traditional valuation and financial analysis methods to digital assets is completely incapable, as all models used for this type are based on borrowed interest and the value of money over time, as interest rates in the centralized financial system are ultimately set by monetary authorities. issuing currencies. It is offered to determine the value of cryptocurrency during the forensic examination of virtual assets at the exchange rate with appropriate adjustments.

Tech Bubble 2.0: How Price Driven Narratives and Return Chasing Behavior Have Created Unsustainably High Valuations for Late Stage Startups in Financial Markets

A narrative that the largest companies in public markets (aka the Big Five - Facebook, Amazon, Apple, Microsoft and Google) were at one point all VC-backed unicorn startups and achieved their success by blitzscaling has propagated a belief that money-losing startups pursuing growth at any cost can offer investors a chance to replicate the Big Five’s outsized returns. In recent years this narrative has led to an explosion in unicorn startups, alongside increasing capital inflows entering into private late-stage startups as a whole. New sources of capital flooding into private late-stage startup fundraising deals comes not just from VC funds but from “non-traditional” VCs, a group that includes mutual funds, hedge funds, sovereign wealth funds and corporations. Historically non-traditional VC investors focused more on stock market investing, but in recent years this group has increasingly participated directly in private market fundraising rounds of late stage startups as a strategy to boost reported returns. In doing so these investors have adopted the VC mindset for investment analysis, prioritizing near-term sales growth and potential for market dominance over profitability. This influx of capital has created an attractive environment for late stage startup fundraising, which has been a contributing factor to elevated valuation levels observed in the space by virtue of the common (but misleading) convention of substituting post-money value for fair value used by private market investors. This upward skew in valuations is a source of bias in the top line returns reported across this asset class, which further reinforces capital inflows to the space. The consequence of the collective dynamics described above has been a positive feedback loop in valuations for late-stage VC-backed startups in private financial markets. In the last few years, VC-backed IPOs have been growing in frequency and size as public market investors are succumbing to price-driven narratives that rely heavily on VC-style investment analysis and less on traditional valuation methods based on normalized earnings and cash flows. This has created the situation where equity valuations for late-stage VC-backed startups have been bid up by speculation and have decoupled from their underlying business value.

Assessment of the Methods Employed in the Valuation of Intellectual Property in Lagos State, Nigeria

The study investigated the methods employed in the valuation of IP in Lagos State, Nigeria; examined the relationship between method of intellectual valuation and academic qualification of estate surveyors and valuers. We adopted a quantitative survey and questionnaire as instrument for gathering relevant data from stakeholders in the study area. The findings revealed that the traditional method; cost method (M = 1.99, SD = 0.108; market method (M = 1.96, SD = 0.186) and income method (M = 1.86, SD = 0.350) are the most commonly used methods for valuing IP in the study area. The result also shows a significant relationship between traditional methods of IP valuation and academic qualification of estate surveyors and valuers; cost method ( = 1.377, p = 0.013), market method ( =1.367, p = 0.033), income method ( = 15.073, p = 0.002), profit/account method ( = 13.467, p = 0.004) and discounted cash flow ( = 1.595, p = 0.024). The study thereby conclude that estate professionals are more aware and conversant with the traditional method than the advanced method of valuation. Therefore, estate professionals will need to ensure clear understanding of the various methods of valuing intellectual property and their application.

Startup Company Valuation: The State of Art and Future Trends

The aim of this conceptual article is to present a systematic literature review about the most used and innovative startup valuation methods to define the state of art and future trends on this important topic.
 
 Because of the particular features of early-stage companies, it is not easy to find an adequate method to assess their value. Traditional valuation methods are unsuitable for startups. Therefore, over time, academic literature and experienced investors created alternative and innovative valuation models. We analysed the main models, outlining the advantages and limits for each one.
 
 The results of our analysis show that there is currently no "perfect" method to assess a startup’s value. Each model discussed has significant limits, and the possibilities for improvement are many. We are witnessing a gradual withdrawal from more arbitrary valuation models, and consciousness is growing towards the idea that to better assess startup’s value, it is necessary to consider three aspects: attention to future forecasts instead of past data, using probability to consider different scenarios, and understanding of and attention to the specific business model of the startup rather than data on comparable companies in the market. Currently, none of the discussed methods integrates these three features harmoniously.
 
 We expect that in the near future, the academic literature will develop new valuation methods (or will perfect existing ones) that should consider the three characteristics mentioned previously. In this way, it would be possible to create a more suitable method to assess a startup's value, i.e., a method to reduce uncertainty and that better represents the startup’s value and makes startup company valuation more reliable.

Evaluation of wind park tax incentives in Colombia by means of real options

<p>The objective of this study is to assess tax incentives in Colombia to foster investment in wind parks. Fiscal incentives seek to diversify energy consumption with non-conventional renewable energy sources, since power is mostly generated by hydraulic force and since its price is impacted during dry seasons. The price of energy is modeled according to a regression toward the mean. This stochastic process was chosen because during droughts in Colombia there are price increases, which then return to their average value. This is an upward and downward spike behavior, as well as a regression toward the mean. Given price uncertainty and its impact on cashflow, wind parks were valued with real options to flatten the reversal for five years. The real option of flattening as an American call option was considered. Results show that, according to traditional valuation methods, wind parks in Colombia are not profitable even with tax incentives. However, according to the real options method, tax incentives do make these projects economically viable.</p>

Measuring the True Potential of Lifestyle Brands in India: A Consumer-Level Scale for Existing and Potential Investors(CL-LBSi)

It is evident that among more than 5000 Indian lifestyle brands, only a few brands have created true lifestyle brand image in their employees, investors, competitors, and consumer’s minds, and the trueness level of a majority of Indian lifestyle brands is still in question. The majority of developing and developed Indian lifestyle brands assume that the success of a lifestyle brand is measured basis the revenue or profit they generate and are unaware of implicit long-term strategical benefits of creating a true lifestyle brand image in consumer’s minds. In India, the lifestyle category has also become one of the most sought-after categories for many start-up entrepreneurs. Just because there is an evident gap for a certain lifestyle product category in the market and just attempting to fill such a gap does not guarantee sustainable success. India indeed is one of the countries with consumers belonging to the widest range of Religions, Regions, Languages, Sub-Cultures and Economic backgrounds which makes it very difficultfor any lifestyle brand to own a true lifestyle brand image at National level and makes itfurthermore important for them to be more careful and efficient in ensuring adaptation of rightconsumer-level evaluation techniques and tools to regularly measure a brand’s the truepotential in attaining a sustainable profitable stage of its evolution. Both new and existinglifestyle brands in India inevitably require investors to fund their journey of attaining the finalstage of evolution which is known as a sustainable profitable stage. However, in the absenceof any inputs-driven consumer-level measurement instruments, investors are in a quandary togauge, estimate and forecast the true potential of lifestyle brands in India from the consumerpoint of view before they make any investment decisions and usually most of the investorsfollow traditional brand equity or valuation methods which are mostly skewed toward outputdriven measures and sometimes they are misleading. In this exhaustive empirical study, wehave studied a few select lifestyle brands, investors and investments to identify 68inputs-basedsub-elements across 4 key elements and 3 dimensions to design a simple consumer-levelinstrument named as CL-LBSi, which would measure the true potential of a lifestyle brand inIndia irrespective of the brand’s current age in the Indian retail market.

Trading off environmental goods for compensations: Insights from traditional and deliberative valuation methods in the Ecuadorian Amazon

Deliberative approaches to ecosystem services valuation have grown in popularity. However, more research is needed to widen current uses, to examine to which applications these methods are most suited, and to standardize them. This study jointly implements individual non-deliberated and group deliberated Choice Experiments and investigates trade-offs between environmental degradation and compensations made by local populations of the Ecuadorian Amazon. In oil-producing areas, compensatory schemes through improved access to public services and money are a common and legalized practice. The research specifically examines preferences towards environmental quality, public services and money of peasant-settlers and indigenous people. It also explores the question of whether deliberation adds to traditional valuation methods. The results from both methods reveal significant preference heterogeneity, best described through three profiles of people: the “conservationists”, the “bargainers” and the “takers”, with substitutability of environmental goods ranging from not at all to somewhat to high, respectively. Deliberation also proves to be a valuable addition to the experimental design as it points out value incommensurability related to the drinkable water attribute. Policy implications and channels to improve the methods are then discussed.

The Valuation of the Operational Flexibility of the Energy Investment Project Based on a Gas-Fired Power Plant

This paper presents an attempt to the valuation of the operational flexibility of the energy investment project based on the example of combined cycle gas turbine (CCGT). For this purpose, the real options approach (ROA), net present value (NPV) method, and the Monte Carlo (MC) simulation have been used. Motivations to take up such a topic result from the fact that traditional valuation methods neglect flexibility embedded in CCGT assets. Operational flexibility was defined as the switching option to dynamically shut down and restart gas units. Valuation of the operational flexibility, the project’s extended net present value (XNPV), was based on a discounted cash flow model. The Monte Carlo simulation, allowing for better replication of the stochastic nature of market factors and some technical parameters, was introduced to the valuation model. The obtained results indicate that the value of the options significantly influences the NPV of the analyzed technology and its risk profile. The NPV was calculated at −169.1 million USD, while the XNPV amounted to 102.5 million USD. This difference, compared to the NPV distribution range at a significance level of 0.05, was more than 8.1% (almost 10.4% for α = 0.1). The results achieved help to explain the significance of the operational flexibility in the modeling profitability of CCGT technologies.

Valuing flexibility in transmission expansion planning from the perspective of a social planner: A methodology and an application to the Chilean power system

We study the value of adding flexibility to Transmission Expansion Planning (TEP) projects from the perspective of a social planner using real options. Due to the deregulation of electricity markets, TEP projects currently face multiple uncertainties. These uncertainties often cause traditional project valuation methods to recommend sub-optimal investment decisions. Additionally, to incorporate the effects of uncertainties on the valuation of TEP projects, current literature rely on some critical simplifications that do not fit well with the real operations of a power market. This paper models the power market in a realistic way by combining an equilibrium model, to assess the power market equilibrium that the TEP project will generate, with a valuation model based on real options, to incorporate the value of flexibility. The methodology is applied to determine the value of adding capacity expansion flexibility to a portion of the rigid TEP project that connects the main two interconnected systems in Chile since 2018. Our results show that, in this case, adding flexibility increases the net expected social welfare by $14.03 million. Several sensitivity analyses confirm that this flexibility has more value when uncertainty is higher and/or investment costs are lower.

Property valuation methods in practice: evidence from Australia

PurposeImproving valuation accuracy, especially for sale and acquisition purposes, remains one of the key targets of the global real estate research agenda. Among other recommendations, it has been argued that the use of technology-based advanced valuation methods can help to narrow the gap between asset valuations and actual sale prices. The purpose of this paper is to investigate the property valuation methods being adopted by Australian valuers and the factors influencing their level of awareness and adoption of the methods.Design/methodology/approachAn online questionnaire survey was conducted to elicit information from valuers practising in Australia. They were asked to indicate their level of awareness and adoption of the different property valuation methods. Their response was analysed using frequency distribution, χ2 test and mean score ranking.FindingsThe results show that the traditional methods of valuation, namely, comparative, investment and residual, are the most adopted methods by the Australian valuers, while advanced valuation methods are seldom applied in practice. The results confirm that professional bodies, sector of practice and educational institutions are the three most important drivers of awareness and adoption of the advanced valuation methods.Practical implicationsThere is a need for all the property valuation stakeholders to synergise and transform the property valuation practice in a bid to promote the awareness and adoption of advanced valuation methods, (e.g. hedonic pricing model, artificial neural network, expert system, fuzzy logic system, etc.) among valuers. These are all technology-based methods to improve the efficiency in the prediction process, and the valuer still needs to input reliable transaction data into the systems.Originality/valueThis study provides a fresh and most recent insight into the current property valuation methods adopted in practice by valuers practising in Australia. It identifies that the advanced valuation methods could supplement the traditional valuation methods to achieve good practice standard for improving the professional valuation practice in Australia so that the valuation profession can meet the industry’s expectations.

DNPV: a valuation methodology for infrastructure and Capital investments consistent with prospect theory

Traditional valuation methods such as net present value (NPV) utilize increased discount rates to account for risk, in the process introducing a time bias effect that promotes short-termism. Application of NPV often discourages much needed infrastructure projects that require large capital investments yet are slow to generate positive cashflows. NPV also downplays the significance of future liabilities and can lead to risk misallocation amongst investment partners and stakeholders. The decoupled net present value (DNPV) method introduces the risk-as-a-cost concept that prices the risk of obtaining lower-than-expected cashflows and thus represents investors’ compensation for bearing such risks. Capturing the loss-aversion attitudes described by prospect theory, DNPV provides a transparent and consistent valuation framework for long-term investments by: (i) calculating expected values of cashflow components using their probability characterizations, (ii) defining the cost of risk (market and non-market) as the expected downside value, (iii) subtracting/adding the cost of risk from/to expected revenues/expenditures, and (iv) discounting the results using risk-free rates. DNPV’s power is illustrated by re-analyzing a 42-year toll-road concession initially evaluated using NPV and real options. The case study shows how explicit risk quantifications could be used to better structure the concession and reallocate risks among stakeholders.

AN ANALYSIS OF APPLICATION OF KEY FINANCIAL RATIOS FOR HUMAN RESOURCES VALUATION IN ORGANIZATIONS

Knowledge workers are now most crucial resources for modern business organizations which keep all other assets men, money, machine and materials operative. However, with growing emergence of knowledge economy, the traditional valuation methods has been put into question due to the non-inclusion of Human capital as a major part of firm’s total value in balance sheet. The value of Human Resources in an organization should be measured for sustainable growth of the organization since it plays the role of motivational tool, efficiency measure yardstick and cost clarification. Human Resource Accounting (HRA) measures and reports the value of employees in B/S which helps management take strategic decisions related to human resources in order to enhance efficiency and productivity. Unlike other category of assets, valuation of Human Assets seems to be complex. One shortcoming is availability of good valuation model since all the models developed till now suffer from limitations in one form or other. This paper tries to suggest a comprehensive, easy to use and relatively limitation free valuation ratio model termed Intellectual Capital Value (ICV), which is modification of existing ratio based models available. For this, all the financial ratios useful for human resources valuation are analyzed first and then the new model termed Intellectual Capital Valuation (ICV) prescribed.

The role of traditional discounted cash flows in the tragedy of the horizon: another inconvenient truth

Providing decision makers and the investment community with transparent methods to value investments in resilience and adaptation measures to protect physical assets from climate change impacts is becoming increasingly critical. To address this need, this paper introduces and utilizes the decoupled net present value (DNPV) valuation methodology. DNPV is a robust method that can incorporate climate change risk into investment analyses. This paper also discusses how the widespread use of traditional valuation methods such as net present value combined with risk-adjusted discount rates introduces a pernicious time bias effect that magnifies stakeholders’ misaligned interests and investment horizons, leading investors, both public and private, to significantly underinvest in resilience and adaptation. Furthermore, because traditional valuation methods cannot correlate physical risks (e.g., loss of revenue due to physical damage or lost access to an asset) with discount rates, investments to reduce climate change risks are largely considered as expenses that make the investment less attractive. The DNPV method addresses this issue and offers a viable alternative that can consistently and transparently quantify all risks (market and non-market) in terms of cash flows. This allows investors and stakeholders to quantify in monetary terms the potential exposure of physical assets to climate-related hazards and assess the effect of decisions to invest in resilience and adaptation measures. With the aid of a simple numerical example, the DNPV method is used to illustrate how such actions can be treated as quantifiable risk reduction investment opportunities that result in better investment decisions.

Determining the Sustainability of a Community Micro Hydro Power System using Real Options Analysis

Micro hydro power is a clean source of renewable energy that has been utilized for remote communities for electricity generation. The technology is mature and operates the same principle as large hydroelectric power plant but with much lower power capacity. Sustainability relies on the financial and other benefits brought about the micro hydro power plant during its operation. Traditional valuation method is often used to valuate micro hydro projects however it does not incorporate uncertainty factors, specifically unpredictable changes in weather. Real Options Analysis, on the other hand, uses both the Black-Scholes Model and Binomial Tree Method which incorporates uncertainty. The valuation obtained through real option analysis represents the net present value of the project with decision flexibility option for the investor. In this study, real options analysis is applied to a micro hydro power plant to identify its financial sustainability. Head and flow rate are obtained to calculate the capital investment, electrical sales, maintenance, and cost of operating nearby agricultural facilities. Traditional financial valuation method revealed a positive outcome making the project financially viable. However, real options analysis provided a contradicting result indicating the implementation of the project should be delayed.

Risk Rating Method Based on the Severity Probability Risk Value and Reserved Risk Maintenance Resource Cost of the Node Disconnection of the Power System

In order to solve the problem of traditional risk rating methods without considering the cost of risk maintenance resources and ignoring the low risk of “High Loss Severity (HLS) with low probability” and the low risk of “High Failure Probability (HFP) with low loss severity”, a node disconnection risk rating method (NDRRM) is proposed. This method considers the severity probability risk valuation (SPRV) and reserve risk maintenance resource cost (RRMRC). The risk rating method based on SPRV developed from the traditional risk valuation method can simultaneously identify the nodes with the highest severity values, the nodes with the highest probability of failure, and the nodes with the largest risk valuation. On the basis of the above model, we consider the cost constraints of the reserve risk maintenance resource and put forward a risk rating method based on SPRV and RRMRC. The risk rating results of this model are suitable for guiding risk maintenance in practice. Simulations are carried out on the modified IEEE RTS-79 system to illustrate the effectiveness of the proposed models, and the simulation results show that the model is reasonable and effective.

Multi-criteria evolutionary algorithm optimization for horticulture crop management

Climate variability requires adaptive production systems in agriculture often resulting in significant irreversible investments. Cultivar replacement programs in horticulture orchards that substitute older varieties for more heat- and drought-resilient varieties have enterprise values that are highly sensitive to the timing of such investments. Farm-level replacement programs are subject to multiple constraints around debt serviceability, operating costs, the replacement cycle and the rate of degradation of the existing orchard. The maximization of enterprise value subject to multiple constraints can be reduced to a multi-objective optimization problem. Over long horizons this optimization process generates a very-large solution space. Using a multi-objective evolutionary algorithm we examine uncertainties around climatic effects and the timing of investments for horticultural operations and derive the optimal times to adapt using cultivar replacement techniques. We find that the investment decision using traditional valuation methods is suboptimal and can result in poor decisions, potentially undermining adaptation efforts. We further show that opposing economic and climatic conditions can adversely impact enterprise value based on mistiming the investment decision. Application of the genetic algorithm solver is demonstrated using a vector-based geographic information system to a farm where individual portions of an orchard are subject to varying rates of production, degradation and age.

Technology valuation of NTBFs in the field of cleaner production with regard to the investors’ flexibilities and uncertainties in public policy

Technology valuation, especially in the early stages of new technology-based firms (NTBFs) growth is one of the most critical challenges, which most often hinders the investor and entrepreneur's deals during the venture capital (VC) financing process. It is clear that uncertainties arising from the likelihood of implementing public policies could significantly affect the volatility of NTBFs cash flows in the field of cleaner production. Commonly, these kinds of technologies require public supportive policies for achieving success. Consequently, their technology valuation is more challenging and traditional valuation methods are not suitable anymore because of the definitive assumption of cash flow and ignoring the investors’ flexibilities and uncertainties. Therefore, this paper proposes a method by introducing a framework based on the decision tree and the real options analysis which is tailored to meet the technology valuation of such firms during all stages of their growth. Furthermore, unlike previous papers that have utilized the compound options, option to choose has been used to apply investors’ flexibilities. Then, the proposed framework is supported by a case study, which has been conducted to verify and validate it. Finally, the conclusion section discusses the contributions and limitations of the study and provides directions for future research.

Investment Valuation Model of Public Rental Housing PPP Project for Private Sector: A Real Option Perspective

Public rental housing (PRH) in China is mainly invested by the government at present. The huge capital demand brings it great pressure and a series of problems appear meanwhile. Public–private partnership (PPP) has been regarded as a way to solve the funding dilemma of PRH. However, the PRH project is not attractive for the private sector since the expected profit seems unsatisfactory based on traditional valuation methods. To improve this situation, this paper proposed an investment valuation model from a real option perspective. For the private sector, three types of options, including deferral option, abandonment option, and expansion option, were identified during the concession period of a PRH PPP project. On this basis, a two-stage binomial tree model was constructed for estimating the investment value. Then, the proposed model was tested in a hypothetical example of a typical PRH PPP project in Chongqing, China. The result shows that great potential value can be excavated through flexible strategies and adaption to uncertainties. This paper provides a deep analysis on the gaps of the real option application in public housing investment assessment, which is meaningful for improving the supply efficiency and financial sustainability of PRH.

ИНФОРМАЦИОННАЯ ТЕХНОЛОГИЯ ПОИСКА КОМПАНИЙ-АНАЛОГОВ ДЛЯ ОЦЕНКИ СТОИМОСТИ БИЗНЕСА, ИСПОЛЬЗУЮЩАЯ ИНТЕЛЛЕКТУАЛЬНЫХ АГЕНТОВ

The paper deals with developing information technology of data processing for solving business valuation problems based on the selection of comparative companies. An emerging IT company or a startup are taken as the object of study, for which traditional valuation methods are not apt. In terms of the research task there has been introduced the concept of a precedent - a company for which the search of analogues is being realized. The basic concepts of multi-agent systems are used. Four types of intelligent agents are presented that provide the implementation of the elements of the end-to-end technology: information search of objects with specified properties, intelligent processing of user requests, monitoring of objects, data mining. Stage sequence of the distributed decision-making technology has been considered. There are given metric and non-metric information processing mechanisms about analogues using metrics and proximity measures. The problem of non-metric information processing has been formulated. The tasks of data mining analysis have been defined, which are vital for monitoring the IT-companies in order to evaluate the business. The presented conclusions are summarized in the form of a complex information technology of data processing.