The variety of approaches to the definition and methods of assessing goodwill has revealed an urgent need to standardize accounting rules at the international level. This led to the emergence of two regulatory documents– IFRS 22 “Accounting for Business Combinations” (1983) and IFRS 38 “Intangible Assets” (1998).
The first standard, which existed before 2004, classified goodwill as acquired and internally generated, which, however, did not meet the criteria of identifiability and control and, as a result, could not be recognized as an asset, while the standard provided for the amortization of goodwill. In 2004, a new standard, IFRS 3 Business Combinations, was released, which replaced IFRS 22 and prohibited the accounting of goodwill using the merger method.
In accordance with the rules established by the above-mentioned standard, the goodwill of the acquired organization must be accounted for using the Purchase Method (note that the international standard allows the write-off of goodwill at the time of acquisition of the company from reserves). The use of this method is to bring the property of the acquired organization and the sources of its formation to their net current market value by revaluation on the date when the merger or acquisition transaction was completed. The amount paid for the acquired enterprise is taken in the resulting integrated structure as the new accounting basis for valuing existing assets. IFRS 22 states that any amount in excess of the cost paid by the acquiring party over the market value of the assets of the enterprise and sources of its formation, control of which is transferred to new owners as a result of a merger or acquisition, should be recorded as goodwill and reflected on the asset side of the balance sheet . In addition, goodwill is not amortized, but is tested for impairment annually or more frequently as necessary. RAS considers acquired goodwill as a type of intangible asset, which, along with other assets, must be depreciated. Thus, there is a gap between Russian and international accounting standards business reputation.
According to international financial reporting standards, goodwill is calculated in several stages:
- Calculation of the amount of revaluation of assets and liabilities to their current market value.
- Determination of the market value of net assets.
- Definition of goodwill by calculation as the difference between the acquisition cost of the company and the market value of its net assets.
- Calculation of the amount that exceeds the cost of acquiring an enterprise over its market value. This value is reflected in the active part of the balance sheet as positive goodwill. Determining the term beneficial use of this asset is within the competence of the company's management.
In the event of a negative business reputation (badwill), the difference between the market and the acquisition cost of the company, this asset is considered as deferred income. The cause of a negative business reputation can be a number of factors: underestimation of the value of liabilities, overstatement of the value of assets, expectation of losses in the future, impairment valuable papers. Bad value characterizes low profitability relative to similar enterprises in the industry, and therefore the value of the enterprise is estimated lower than the value of its property. In RAS, negative business reputation should be considered as a discount on the price provided to the buyer due to the lack of factors of the presence of stable buyers, reputation for quality, marketing and sales skills, business connections, management experience, level of personnel qualifications, etc. according to PBU 14/2007.
We can say with confidence that there is no single methodology for calculating business reputation, because To date, there is still no consensus on the definition of business reputation. Disputes about its synergetic essence, components, recognition and evaluation have not subsided among scientists for the second century. This circumstance is directly related to the variety of existing methods for assessing business reputation, which can be conditionally differentiated into qualitative and quantitative methods for calculating goodwill. Analysis of works by V.M. Eliseeva, A.E. Ivanova, E.E. Yaskevich and other Russian scientists studying the issues of assessing goodwill when planning mergers and acquisitions, allowed the author to create a classification of the existing main methods for assessing business reputation that are relevant today, which is presented in Figure 1.
Figure 1 – Methods for assessing goodwill
Method expert assessments is to compile expert opinion about business reputation ratings of various companies. As a rule, such ratings are compiled by reputable independent agencies. The disadvantage of this method is its subjectivity, as well as low awareness of the nuances of the company’s activities, its hidden potential, which, sometimes, can only be appreciated by the company’s owners.
When using the sociological survey method, the opinions of employees, shareholders, investors, analysts, customers, etc. are analyzed. about the organization. It is believed that this assessment is the most accurate, and other methods can only clarify the situation. However, according to the author, this method does not allow one to provide quantitative information about the value of goodwill. In addition, people's opinions can be very subjective and far from reality, which casts doubt on the appropriateness of using this method when estimating the value of goodwill. Another disadvantage of this method is the time and effort required to obtain data and process it.
The comparative method consists of assessing the image of the enterprise in question in comparison with the image of another enterprise, usually a similar or direct competitor. A significant drawback is the fact that it is not always possible to accurately and fully assess all the factors influencing the business reputation of the company being considered and compared, which can significantly distort the data obtained and cast doubt on their reliability.
Quantitative methods can provide a more reliable valuation of an organization's business reputation.
These include:
- Excess Profit Method.
- Edwards-Bell-Olson (EBO) model.
- Redundant resource method.
- Based on sales volume indicator.
- Based on cost indicator.
- Qualimetric method.
- Based on market capitalization indicator.
- Balance-normative method.
Excess Profit Method was outlined by L. Rethel in 1924, and for the measurement of goodwill was introduced by the Internal Revenue Service and introduced by the Department of the Treasury in the United States. When valuing this method, it is assumed that the value of the company is determined by summing the value of goodwill and the adjusted value of the enterprise's net assets. Excess profits of the enterprise can be taken into account at the capitalization rate. IRS Instruction No. 68-609 established capitalization rates for tangible and intangible assets by policy. For organizations with low level risk capitalization rate is 8% for tangible assets and 15% for intangible assets. For organizations with a high level of risk – 10% and 20%, respectively. However, in domestic practice, they are not legally enshrined anywhere. similar odds, which forces one to be guided by the indicators necessary for the calculation, the average indicators of competing enterprises.
The essence of this method is to determine the possibility of obtaining a profit indicator above the industry average, that is, an indicator of excess or excess profit due to the occurrence of goodwill as a projection of a synergistic effect, however, in essence, the technique is based on average statistical indicators, which casts doubt on the reliability of the data obtained.
GW= (M-R CH× ANG)/R K ,
Where G.W.– the amount of goodwill;
M– net profit of the enterprise;
R CHA– industry average return on net assets;
ANG– net adjusted assets;
R K– capitalization rate.
The enterprise value is determined by summing the value of tangible assets and goodwill.
A modification of the excess profits method is Edwards-Bell-Olson model ( Edwards- Bell- Ohlson valuation model, model EBO) , which closely resonates with EVA model(economic value added), which is based on economic added value. This technique is also based on the possibility of obtaining extraordinary profits from existing goodwill, but Olson was confident in the probabilistic nature of excess profits, so he proposed his own model of the technique, adjusted for mathematical probability:
Where P t– enterprise value at time t;
Bt– book value of net assets (book value) of the enterprise at time t;
T– end of the forecast period;
i– period of existence of the enterprise;
Et– expected values of net income;
ROEt+I– return on equity for period t+i (return on equity) (essentially, this is the ratio of profit after taxes to the book value of equity);
r e– cost of equity capital (essentially, this is the rate of return on invested capital expected by shareholders);
B t +i-1– book value (net asset value) of the enterprise at the beginning of period t+i;
ROEt+T+1– return on equity of the enterprise by the end of the forecast period;
B t +T– book value of the enterprise at the end of the forecast period.
It is worth noting that the accuracy of the forecast with the expansion of the forecast horizon significantly reduces the reliability of such an assessment. However, this phenomenon does not apply to the EBO model, because relatively large specific gravity occupy the net assets of the organization, and only goodwill is forecast. The advantage of this model in relation to domestic practice is undoubtedly the fact that this model allows you to most reliably estimate the cost Money invested in real assets, and also gives an idea of how much of the company's market value is due to goodwill.
At the core excess resource method When calculating the value of internally created goodwill, the effect of using both own and borrowed funds is taken into account:
GW=(M/R –TA)× w,
Where R– profitability of the enterprise’s assets;
T.A.– the value of the enterprise’s total assets;
w– the share of own funds in the sources of formation of the enterprise’s assets.
The excess resources method, in fact, is also a modification of the excess profits method, and therefore has the same disadvantages.
For use method for assessing goodwill based on sales volume indicator It is also necessary to know industry average profitability indicators. The value of business reputation is determined by the formula:
where M is the average annual net profit of the enterprise;
ABIT is the average annual revenue of the enterprise being assessed;
R Q– industry average profitability ratio of products (works, services);
a– coefficient of capitalization of excess profit of the enterprise.
The use of average indicators in this method leads to an error.
Essence method of assessing goodwill based on the cost indicator consists in determining the interrelation of net profit and cost indicators, based on the assumption that the manifestation of a set of unique intangible advantages at the stage of distribution of a production product is a manifestation of business reputation. Since the method is based on the cost indicator, the main one, with a low probability of reliability, it can be applied to companies that supply communication services, provide insurance services, to banks, etc.
The qualimetric method is based on the identity of the concepts of goodwill and the usefulness of the enterprise.
Where k f– utility coefficient of the enterprise;
qf– actual indicator of the enterprise;
q min– the worst indicator among similar enterprises;
q max – best indicator among similar enterprises.
Since depreciation is interpreted as an indicator of loss of utility, then to determine the value of goodwill, the total depreciation of the enterprise is determined:
V=1–(NOI f/NOI pr),
Where V – general wear and tear of the enterprise;
NOI f – net operating income of the enterprise;
NOI pr – the projected value of the enterprise's net operating income, which is defined as the deviation of the maximum value of net operating income from its minimum possible level.
Hence, goodwill is determined by the formula:
GW=V –V f –IA,
Where V f- physical deterioration non-current assets enterprises;
I.A.– the value of the enterprise’s intangible assets.
Goodwill valuation method based on market capitalization indicator admits the fact of acquisition of shares for financial management company.
GW=m× C–A.N.C.
Where m– the number of shares issued by the company;
C– the current stock price of the company at the time of valuation;
ANC– the market value of the company’s net assets as of the valuation date.
If a company issues several types of shares (ordinary, preferred), the formula will take the form:
Where n– the number of varieties of company shares;
m i– the volume of issued shares of the i-type company;
C i– stock price of the i-type company;
ANC– market value of the company’s net assets.
This method is only applicable for joint stock companies, in case the company is not fully controlled by one shareholder.
The regulatory accounting method can be differentiated into:
- An accounting method in which goodwill is calculated as an arithmetic difference, in other words, the acquisition cost is reduced by the book value of assets, the difference being goodwill. One of the significant disadvantages of this method is the non-identifiability of goodwill from a banal overpayment; at the same time, this method does not allow taking into account internally created business reputation.
- The cost method, which is based on taking into account the costs of preparing and using business reputation. Includes costs for personnel training, implementation of management, marketing and other technologies. It is worth noting that not all costs incurred entail the creation of a new intangible asset – goodwill. In addition, the costs that can still be written off for the creation of goodwill form goodwill indirectly; accordingly, they cannot be fully attributed to the creation of goodwill, and it is not possible to write them off in proportion to one or another base.
In order to have the most complete understanding of the variety of methods for assessing business reputation, their advantages and disadvantages, you need to refer to Table 1.
Table 1 – Advantages and disadvantages of methods for assessing business reputation
|
Method name |
Advantages |
Flaws |
|
Expert assessment method |
Allows you to obtain a qualitative assessment of the company’s business reputation |
Subjectivity of the data obtained |
|
Sociological survey method |
Applicable only to recognizable and widely popular companies |
Subjectivity of the data obtained, complexity of collecting and processing information |
|
Excess Profit Method |
Allows you to predict the receipt of excess profits |
|
|
Excess Resource Method |
Allows you to take into account the efficiency of using your own and borrowed funds |
The use of average statistical data distorts the reliability of business reputation assessment |
|
Edwards-Bell-Olson model |
1) Allows you to predict the receipt of excess profits with mathematical consideration of its probabilistic nature. 2) Shows what part of the company’s value is due to goodwill, and which - net assets |
Mathematical complexity |
|
Based on sales volume |
Gives an idea of the value of goodwill as an indicator of the average annual profit, adjusted to profitability ratios and capitalization of excess profit |
The use of average statistical data distorts the reliability of business reputation assessment |
|
Based on cost indicator |
Allows you to determine the relationship between profit and cost indicators |
The scope of application is limited only to companies where it is possible to directly calculate the cost of production. |
|
Qualimetric method |
Allows you to characterize the degree of depreciation of enterprise assets |
The use of comparative indicators of other companies, thereby increasing the likelihood of distortion of the assessment obtained by this method |
|
Based on market capitalization indicator |
Gives an idea of goodwill, taking into account how much the shares of the analyzed company are in demand on the stock market |
Scope of application is limited to companies with a joint-stock legal form |
|
Accounting method |
The simplest algorithm for finding goodwill |
1) Does not take into account the high probability of attributing an overpayment (markup) to the value of goodwill; 2) Allows you to take into account only acquired goodwill, not allowing you to take into account internally generated goodwill |
|
Cost method |
Easy to use |
Creates a distorted view of the value of goodwill |
Having analyzed the data presented in Table 1, we can conclude that there is no single calculation method for assessing business reputation. The methods known today are not universal, and therefore do not take into account the specifics of business in a particular area. It is also worth noting that all these methods do not take into account in the value of goodwill factors that have a direct impact on its value, for example, a good location, the company’s market share, the reputation of management, and the qualifications of employees. Each of the methods, while covering one aspect of goodwill, does not take into account its entire composition. key features. All this greatly complicates the reflection of business reputation, both acquired and internally created, in accounting financial statements.
Methods for assessing business reputation (goodwill)
In assessing the business reputation of an enterprise, this is the amount by which the value of the business exceeds market value financial, material and part of the enterprise’s intangible assets reflected in the financial statements.
In other words, an enterprise's goodwill represents that part of the value of an enterprise that exists only with that enterprise and cannot be attributed to any specific asset.
The value of a business's goodwill arises when a business earns a return on assets or equity that is typically above the industry average.
There are methods for assessing the business reputation of an enterprise (goodwill):
- o accounting method;
- o excess profits;
- o formulaic.
Accounting method. The business reputation of an enterprise, calculated by the accounting method, is the difference between the purchase price (acquisition costs) of the company (enterprise) and the total value of all its identifiable assets and debt obligations (in liabilities).
The sequence of determining the value of an enterprise's business reputation (goodwill) using the accounting method:
- o the price (costs) of acquiring the enterprise (Zp) is determined;
- o the book value of tangible assets is determined on the date of sale (acquisition) of the enterprise (BStma);
- o the book value of assets is adjusted so that their market value (RStma) is determined;
- o the value of separately identified intangible assets (separable from the enterprise) is determined from the balance sheet as of the date of sale (acquisition) of the enterprise (Stna);
- o all liabilities, all accounts payable of the enterprise are determined (Ab);
- o the value of an enterprise’s business reputation (goodwill) is determined as the difference between the purchase price and the market value of all tangible assets and separately identifiable intangible assets, minus the accounts payable (liabilities) of the enterprise:
St 6m = Zp - (RStma + Sleep) - Vol. (9.16)
Example. Company "A" paid company "B" 1,090,000 thousand rubles. for 6,000,000 ordinary shares. There are a total of 10,000,000 shares of Company B's common stock outstanding. Therefore, the investor's share is 60% (6000: 10,000 x 100%).
Direct expenses of company "A" for the acquisition of company "B" amounted to 2,000 thousand rubles. The consolidated balance sheet of company "B" at the time of purchase is presented in table. 9.7. Determine the value of the goodwill of company B, which was acquired by company A.
Table 9.7
Balance sheet (consolidated) of company B (at the time of purchase)
|
Negotiable |
Authorized capital |
||
|
Cash facilities |
Additional |
||
|
Basic |
Total equity |
||
|
including: |
Short term obligations |
||
|
Bond |
|||
|
buildings (rest station) |
|||
|
equipment (remaining station) |
|||
|
Other assets |
|||
|
Total assets |
Total liabilities |
||
- 1. The market value of assets and the bond issue is determined.
- 1.1. Calculation of the market value of a bond loan with a coupon yield of 6% at a discount rate of 8% and maturity in 4 years.
Calculation procedure.
Coupon interest (payments) on bonds: 200,000 x 0.06 = 12,000 thousand rubles.
Total amount of payments on bonds:
Sob = 200,000 x (1 + 4 x 0.06) = 200,000 + 48,000 = 248,000 thousand rubles.
Current value of the total amount of payments on bonds:
And purchase price = 12,000 x = 39,745.52 thousand rubles.
And the main amount = 200,000 x (1 + 0.08) -4 = 147,006 thousand rubles.
The present value of the entire bond issue is equal to 39,745.52 + 147,006 = 186,751.5 thousand rubles.
Market value of the bond loan as of the valuation date: RUB 186,751.5 thousand.
- 1.2. The market value of assets and liabilities of company B, identified as a result of revaluation as of the valuation date, was:
- - reserves: 95,000 thousand rubles;
- - land: 420,000 thousand rubles;
- - buildings: 550,000 thousand rubles;
- - equipment: 80,000 thousand rubles;
- - bond loan: 186,751.5 thousand rubles.
Discount rate 8% (interest rate on the market at the time of purchase), repayment period: 4 years.
- 2. Procedure for calculating business reputation (goodwill).
- 2.1. Investment costs: 1,090,000 + 2000 = 1,092,000 thousand rubles.
- 2.2. A normalized balance sheet (not an accounting balance sheet) is drawn up for the purpose of evaluating company “B”, taking into account the market value of assets and liabilities identified as a result of revaluation (Table 9.8).
Table 9.8
|
Negotiable |
Authorized capital |
||
|
Cash |
Additional |
||
|
Retained net profit |
|||
|
Fixed Assets |
Total equity |
||
|
including: |
Short-term obligations |
||
|
buildings (rest station) |
Bond |
||
|
equipment (remaining station) |
|||
|
Other assets |
|||
|
Total assets |
Total liabilities |
||
2.3. The value of net assets (equivalent to the company’s equity capital) is calculated:
Net assets = Equity = Assets - (Short-term liabilities + Bond debt) = 1,590,000 - (155,000 + 186,751.5) = 1,248,248.5 thousand rubles.
2.4. Investor's share in the net assets of company B at book value:
Investor's share = Net assets x Investor's share = 1,248,248.5 x 0.60 = 748,949.1 thousand rubles.
2.5. The difference between investment (purchase) costs and the value of net assets is 1,092,000 - 748,949.1 = 343,050.9 thousand rubles.
Thus, the value of the business reputation of company “B” acquired by company “A” is 343,050.9 thousand rubles.
Excess Profit Method assumes that all objects intellectual property, including unidentified (non-allocated) NML enterprises, participate in the formation of the total profit of the enterprise. The value of an enterprise's business reputation (goodwill) using the excess profit method is considered as the value of part of the intangible assets that create profit above the market average.
The sequence of determining the value of an enterprise's business reputation (goodwill) using the excess profit method:
The average industry profitability (Po) is calculated as the ratio of the annual net profit (NPr) to the average annual cost of the industry's own funds (Sko):
Rho = ChPr/Sko;
The profitability (Рп) of an operating enterprise is determined as the ratio of the annual net profit (NPr) to the average annual cost of the enterprise's own funds (Skp):
Rp = ChPr/Skp;
Excess profit (EP) is determined, for which the difference between the industry average profitability and the profitability of the enterprise is multiplied by the average annual cost of equity (ACC) of the enterprise:
DPri = (Pn - Po) x Sqp;
- - capitalization ratio (Kk) is calculated;
- - the value of intangible assets is calculated as the quotient of dividing the amount of excess profit by the capitalization ratio:
Sleep = DPri / Kk;
The part of the value of intangible assets attributable to the assessed goodwill is determined.
This method is used when the difference between the industry average profitability and the enterprise profitability is positive. This difference determines the degree of excess profit in a given business.
Example. Based on the results of the analysis of the financial condition of the enterprise, a normalized balance sheet was compiled (Table 9.9).
Table 9.9
Normalized balance sheet of company "B"
|
Negotiable |
Authorized capital |
||
|
Cash facilities |
Additional |
||
|
Retained net profit |
|||
|
Basic |
Total equity |
1 248 248,5 |
|
|
including: |
Short term obligations |
||
|
buildings (rest station) |
Bond |
||
|
equipment (remaining station) |
|||
|
Other assets |
|||
|
Total assets |
Total liabilities |
||
Normalized (average annual) net profit 240,000 thousand rubles. The industry average return on equity (return on equity) is 15%. Capitalization rate 20%.
We calculate the amount of equity capital (SC):
SK = Assets - Liabilities = 1,590,000 - (155,000 + 186,751.5) = 1,248,248.5 thousand rubles.
The industry average return on equity (return on equity) is 15%, so the return (average profit) on equity is:
ChPro(sk) = 1,248,248.5 x 0.15 = 187,237.28 thousand rubles.
Then the excess profit is:
240,000 - 187,237.28 = 52,762.725 thousand rubles.
The value of goodwill is determined as the quotient of excess profit divided by the capitalization ratio:
St good = 52,762.725: 0.2 = 263,813.63 thousand rubles.
If data on industry average profitability is insufficient or absent, and excess profit has to be determined based only on enterprise data, then use formula method. Its essence lies in the fact that instead of the industry average profitability, retrospective data on the enterprise’s profit are used.
Calculation sequence:
- 1) the average income (net profit) for the retrospective period is determined;
- 2) the average annual market (not book value) value of tangible assets for the same retrospective period is determined (RStma);
- 3) from the average annual market value of tangible assets, the average annual values of separately identified intangible assets, but not included in the balance sheet, and all liabilities are subtracted.
The result obtained is the value of assets for the formula (RStma - IMA - Ob);
- 4) the profit of material assets is determined according to industry indicators of the rate of profit ( i pr.neg 1tp): RStmasr - NMA - Ob) x i np. from p;
- 5) from the amount of net profit received, the profit from tangible assets is subtracted: ChPsr - (RStmasr - NML - Ob) x i etc .neg ;
- 6) if there is excess income, then this income is capitalized:
Sfm = [ChPsr - (Stmasr - NMA - Ob) x i pr.neg ] / i To
Example. Determine the value of goodwill if, but the results of the balance sheet analysis and financial results the following was revealed:
- - industry rate of profit indicator: i ave.neg = 15%:
- - profitability of company i k = 20%;
- - financial indicators are presented in table. 9.10.
Based on retrospective data of the enterprise's profit, a table is compiled. 9.10:
Table 9.10
Determination of net profit on average tangible assets, thousand rubles.
Excess profit: 240,000 - 128,486 = 111,514 thousand rubles. The cost of business reputation (inseparable intangible assets) when i k - = 20%:
St good - 111,514: 0.2 - 557,570 thousand rubles.
Liquidation value when determining the value of an enterprise (business) using the cost approach, it represents the value that the owner of the enterprise can receive upon liquidation of the enterprise and the separate sale of its assets.
The assessment work includes several stages.
- 1. The latest balance sheet is taken.
- 2. A calendar schedule for the liquidation of assets is being developed, since the sale various types assets of the enterprise requires different time periods.
- 3. The gross proceeds from the liquidation of assets are determined.
- 4. The estimated value of assets is reduced by the amount of direct costs. Direct costs associated with the liquidation of an enterprise include commissions for appraisal and law firms, taxes and fees that are paid upon sale, taking into account the liquidation calendar as of the valuation date at a discount rate that takes into account the risk associated with this sale.
- 5. The liquidation value of assets is reduced by the costs associated with holding the assets until they are sold, including the costs of maintaining inventories finished products and work in progress, preservation of equipment, machinery, mechanisms, real estate, as well as management costs for maintaining the operation of the enterprise until its liquidation.
- 6. Operating profit (loss) of the liquidation period is added (or subtracted).
- 7. Preferential rights to severance pay and payments to employees of the enterprise, claims of creditors for obligations secured by a pledge of the property of the liquidated enterprise, debt on mandatory payments to the budget and extra-budgetary funds, and settlements with other creditors are deducted.
Thus, the liquidation value of an enterprise is calculated by subtracting from the adjusted value of all assets on the balance sheet the amount of current costs associated with the liquidation of the enterprise, as well as the value of all liabilities.
Determining the final value of the business value assessment
After reading this chapter, you will be able to determine the final valuation of the enterprise.
International business valuation standards recommend, and Russian standards enshrine as mandatory, three valuation approaches - cost, comparative and profitable, which necessitates harmonization of the results obtained, since these approaches are applied to the same object within the same valuation procedure.
To derive the final value of cost calculated by three approaches and valuation methods, we use various ways determining the weighting coefficients necessary to derive the value of a business based on the weighted average formula. In addition to the methods of mathematical and subjective weighing described in the monographs of S. Pratt, the method of expert qualimetry, the probabilistic approach and the method of hierarchy analysis (MAI) are also used. The method uses a criteria tree in which general criteria are divided into specific ones. For each group of criteria, importance coefficients are determined. A means of determining the coefficients of importance of criteria or the criterion value of alternatives is pairwise comparison. The comparison result is assessed on a point scale. Based on such comparisons, the importance coefficients of the criteria are determined, the evaluation of alternatives is determined, and the overall rating is found as a weighted sum of the criteria ratings.
The proposed methods for harmonizing assessment results are heuristic in nature, i.e. do not have strict scientific proof. However, these methods have found widespread practical use in assessment activities because of its simplicity and clarity.
Rice. 10.1.
Empirically, a weighted average was determined to determine the final cost:
o when using two methods, use the following formula:
where С min - min calculated value value determined by any method; C max - max is the calculated value of the cost, determined by some method.
o when using three methods, use the following formula:
(10.3)
where C min - min the calculated value of the cost, determined by any method; C max - ptah the calculated value of the cost, determined by some method; C av - the average calculated value of the cost, determined by some method.
The final value of the cost, calculated by three approaches and valuation methods, and the justification for this value are included in the report.
Cost assessment acts as a criterion for the effectiveness of management decisions that can lead to a decrease or increase in the value of the enterprise.
The value of an enterprise (business) is reflected in the value of securities.
Why is it necessary to assess a company’s business reputation?
Assessing a company's business reputation is guaranteed to increase its status both among competitors and among various investors, clients and partners.
It is believed that assessment of the company's business reputation is required only by serious, large and actively developing organizations and enterprises, but this is not so. This set of measures allows an ordinary company that does not seek to capture the market or dominate its sphere of production of goods or services to obtain a lot of advantages. Business reputation assessment gives ample opportunities even for small companies, allowing you to get high-quality results in almost 100% of cases.
And in order to operate this correctly interesting tool(meaning the assessment itself), you need to know and understand the rules by which it all works now.
A qualified assessment of a company’s reputation is always important
For any company, its qualified assessment of business reputation is very important, since this is what allows one to achieve an impressive result where all other methods have become invalid and did not lead to the desired result. We are talking about the following advantages:
- Assessment of a company's business reputation guaranteed to increase its status both among competitors and among various investors, clients and partners. After all, it is much safer to work with a company that confirms its qualifications and real experience in the market than with someone unknown;
- Assessing the actual experience and reputation of the organization allows the company itself to understand what it should work on first, and what improvements and upgrades can be postponed until better times. For managers, this is a wonderful tool for improving their brainchild;
- Valuation also provides an excellent opportunity to rank with more worthy competitors, making the company a more attractive target to new and potential customers. If you go through this evaluation process periodically, the results can be impressive.
Thus, the assessment of a company’s business reputation directly proportionally affects how its business will develop and proceed in the future. After all, even if a company does not plan major development, increasing its quality level and confirming this fact is a very serious bid for victory.
You can order a business reputation assessment from a special, accredited agency or certification company that conducts the necessary research promptly, skillfully and highly professionally.
Source - Rusregister.ru
Although business reputation is not a material benefit or an asset, it can be measured using quantitative indicators that express the degree of profitability, profitability, profitability of an activity legal entity. Such an assessment has great importance both for the company itself, which is engaged in business, and for business partners who will be able to take the company to a new market level, if the feasibility of this is objectively confirmed. Therefore, today there are methods for assessing business reputation.
The concept of assessing business reputation and the main methods of this assessment
The assessment of business reputation occurs through the assessment of certain identifiable assets that a particular company currently has. Such an assessment allows us to build further prospects and development lines that increase profitability. Such identifiable assets can be a brand or a trademark, or any intangible asset. Methods for assessing business reputation help determine the value of such intangible assets as technology, innovation, know-how, trademarks, brands, as well as special marketing developments. They should potentially bring increased profits and improved income dynamics.
Most effective method assessing business reputation is to determine the totality of business segments, as well as those qualities (managers) that encourage clients to resort to the services of a particular company, or motivate them to purchase goods and products from it.
Methods for assessing business reputation in this case are based on the method of calculating goodwill. Such an assessment reflects the total value of goodwill of a company or firm. Similar method can be used to assess business reputation if the company acquires a certain position in market relations, which is associated with stability, high profitability and profitability, and positive dynamics of income growth. A prerequisite in this case is an indicator that is above average.
A similar assessment system is widespread in the practice of Western promising and profitable companies that have reached the interstate level of market relations. In fact, methods for assessing business reputation using goodwill are based on the so-called term “goodwill”, which actually means goodwill. This “good will” is expressed in the voluntary desire, motivation and intention of customers to resort to the services or goods of a particular company, company or organization.
Methods for assessing business reputation using the goodwill method
The assessment of goodwill reputation determines, first of all, the difference between the total property complex and the liabilities and assets that a particular company currently has. This is how a value indicator is derived, which can be used to determine whether the company’s profitability will be above average for a similar market segment or not.
Methods for assessing business reputation using goodwill involve two methods:
- Assessing the level of excess profits involves assessing goodwill for a specific brand, which is the main source of income and generates more significant profits than it would have been if the product had not been positioned as a separate brand.
- Valuation of goodwill on the balance sheet. IN in this case The assessment of the value of goodwill occurs by calculating the difference between the entire value of the business and the value of the assets it owns. In this case, both tangible and intangible assets are taken into account.
Methods for assessing business reputation using goodwill have one circumstance in which managers, consciously or not, overestimate the value of their own intangible assets, in this case statistical analysis won't be able to give objective picture and take into account future trends and development prospects of the company.
Methods for assessing business reputation using the Goodwill method
Today, when calculating the value of reputation, there are two main methods that help to objectively calculate the reputation coefficient:
- The excess profit method is based on calculating indicators of additional financial income and identifying the source of this income (whether it is a brand or some kind of innovation that has increased income). In this case, there is a contrast between the profitability of a particular company, as well as competitors (from a similar industry), with further capitalization, which is in no way explained by the company’s material assets.
- Methods for assessing business reputation using goodwill also include the second method. It is based on the results that specific business transactions produce.
It is especially important to apply methods for assessing reputation if business expansion is planned, for example, during a merger or acquisition of a company, when selling or buying a specific business, when making specific management decisions regarding innovations, reorganization of departments, etc. Methods for assessing business reputation are necessary to predict prospects and trends in further business development.
Assessment of the organization's business reputation
Nowadays, cases of purchase and sale are quite common. ready-made business. It is convenient to purchase an enterprise in the service, manufacturing or trade sector, in which the work process is organized and streamlined. There is no need to start everything from scratch, select personnel, or develop a client base. However, you should correctly assess the capabilities and prospects of the business being purchased, and compare the costs of its acquisition with the opportunity to obtain the desired profit. The price of a business can be completely different. As a rule, it consists of the value of tangible intangible assets. Most interesting characteristic intangible assets is the assessment of the organization's business reputation (Goodwill).
How to evaluate an organization's business reputation
Assessment of the organization's business reputation– the concept is complex and subjective. It consists of a set of intangible assets, such as: market position, advantage over competitors, level of preparedness and cohesion of the team, management personnel, availability promising developments, customer base, registered and recognizable product brand. All these factors make it possible to assess the possibilities for further development, predict an increase or decrease in profits, and outline ways to reorganize and improve the organization. By themselves, separately from the company, these factors have no value, and therefore can only be considered in conjunction with material ones, forming a single image of the company, by which one can judge the ability or inability to continue operating in a particular market.
Calculating the valuation of an organization's goodwill is not very simple, unless its shares are listed on the stock exchange, where its market value is already known as the value of the aggregate shares. Most often, you have to use several methods for determining Goodwill, which can mainly be divided into qualitative and quantitative.
Assessment of an organization’s business reputation using quantitative and qualitative methods
The assessment of an organization's business reputation can be quantitatively calculated: by the excess profit method, by the excess resources method, by assessment based on market capitalization, however, none of these methods can claim absolute accuracy, since during calculations one has to deal with such errors as: incorrect determination of net income, adjusted assets. When choosing one or another analysis method, it is necessary to take into account the specifics of the industry, company policy, geographical position and the reliability of the data provided for analysis.
Qualitative methods cannot give any assessment at all, since they are based on the conclusions of experts and sociological surveys. They only indicate the dynamics of the business activity of the enterprise.
The assessment of an organization's business reputation can be either positive or negative. If the value is positive, then this indicates the company’s stable position in the market, the presence of advantages over competitors, the possibility of further development and, together with material assets, forms the final market value of the enterprise. In the opposite case, it's the other way around. A negative value of business activity implies a decrease in the market price to the point that it will be lower than the value of tangible assets, due to the need for capital investment and a set of measures to improve the condition of the organization.
The most accurate assessment of an organization’s business activity can only be carried out by specialists from a serious company who will analyze all possible factors. However, even for them it is quite difficult to assess the business activity of an enterprise mathematically accurately, just as it is impossible to reflect it on the balance sheet before the transaction is completed. This will be contrary to the Law “On accounting and reporting”, which prescribes the inclusion in the balance sheet only of those assets for which cash payments have been made. However, a completely different situation arises after a transaction has been completed, where Goodwill is included in the final amount of the transaction, assumes a specific monetary value and can be taken into account in the balance sheet of the enterprise.
As a rule, an assessment of the business activity of an organization is formalized as having a residual profit of the enterprise or is accounted for as an asset and is gradually written off taking into account depreciation. The first method is the most rational, since it allows you to clear the balance sheet of “air” assets. Also, when one enterprise is purchased by another, this allows one to avoid the mistake of comparing the development of two companies, since the purchasing enterprise, as a rule, does not have pledged Goodwill in its assets.
Reputation assessment
Reputation in the modern sense, as it is interpreted by PR industry figures, is a complex complex of conscious and subconscious data and emotions that relate to a specific object or subject and are based on personal experience, as well as on information received throughout life. As is clear from the above, reputation and reputation assessment are those concepts that are difficult to unambiguously define and calculate, especially if this is not done by specialists. The need for constant struggle for leadership and the sales market, however, requires work with reputation, which gave birth to companies that are engaged in assessing, forecasting and influencing reputation.
How and why reputation assessment is carried out
Numerous organizations are engaged in assessing reputation and activities, as well as describing these processes; the network is literally filled with recommendations and essays that relate to reputation and methods for assessing it. You should immediately understand that no company or specific person will ever be able to clearly disclose and describe all the actions that he does to make money; no one needs extra competitors and independent clients. However, let’s still try to figure out how reputation is assessed and improved and why all this is needed.
To explain what reputation assessment is and how to conduct it, it is worth achieving a full understanding of the full breadth and complexity of the concept of reputation. In many stores you can find consultants who find out what kind of cigarettes the buyer smokes, why these are the ones and why not the ones that the consultant suggests buying. This, offhand, is one eightieth of the reputation assessment process and is called collecting information from potential consumers. This step is one of the first and allows you to soberly assess what to do with the reputation and which particular area of PR the company is lacking.
Analysts, before collecting information, divide all the factors that influence the company's image into a brand perception group and a cognitive group, which is the subconscious aspect. Branding is a fairly simple, but costly process of planting and introducing information and products produced by a company into so many areas of a potential consumer’s life that he cannot spend a day without hearing or coming into contact with the product. A highlight of the branding is where sales representatives place Snickers and bounty items - a prominent place near the counter that even an elderly customer with poor eyesight will not be able to bypass. The same Snickers, which is a private rare product name, is not highlighted by the Word program as an erroneous word (it is built into the built-in dictionary that the Americans did). This is complex branding, and if a company wants to reach a level where its product is sold everywhere and in huge quantities, analysts advise doing the same.
The second and most difficult area is the assessment of cognitive reputation, which arises in the subconscious of people. This area, which, in fact, occupies more than half of the factors of purchase or refusal of purchase by the buyer, more than 90% of companies are not aware of and ignore. Even scientists have only recently begun to deduce accessible form formulas that allow you to calculate and evaluate cognitive reputation and give it a sober assessment. The problem with this type of reputation is the need for analytical modeling of situations with a direct impact on customers. Assessing the subconscious attitude towards a company can only be done by simulating a crisis situation, for example, declaring a product dangerous to health or life, followed by collecting the result of a drop in sales and assessing the pros and cons of the current one. Not a single company actually takes such measures, and their assessment is limited to a prediction, which is only as true as Pavel Globa’s forecasts or the horoscope in the newspaper (sometimes to the point, but there are zero guarantees).
More guaranteed techniques use the most ambiguous and effective area of information and communication - the Internet. You can post everything on the Internet necessary information, which the reputation assessment requires, and not be afraid of any tangible harm. At the same time, the number of potential targets can be more than hundreds of thousands, and the costs and availability of companies that work with reputations on the Internet are much lower than when working with clients directly.