Professional Documents
Culture Documents
University Lecturer MARIAN COVLEA PhD Candidate in Financial Management May 14, 2007
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It will not be easy, so please pay your full attention to the presentation! Please turn your cell phones on Silent or Mute mode You can ask anything, anytime! Thank you in advance!
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You can divide your sheets of note-paper into two vertical halves (columns): The left column for slide contents The right column for additional comments, explanations, examples, synonyms, etc. 2. Be attentive rather than writing word-by-word, these slides are available for free at: http://www.ucdc.info/cd/cd_profil.php?cid=1064
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Utility Value: represents the extension of users want/need fulfillment and satisfaction, it is highly subjective. reflects the subjective, soft, invisible, hardly verifiable or provable part of an asset, a liability, a business or a company. generates non-patrimonial valuation methods, such as Discounted Cash Flow.
What is Valuable?
Having considerable monetary worth Of considerable use or importance Having qualities worthy of esteem
Accounting evidence and reporting (A True and Fair View on Patrimony) Taxation of Properties Mergers and Acquisitions of companies Sale/Purchase of a Business or parts of it Association / Partnership Contracts (Deeds) Stock Exchange Listing and Transactions Litigations
Prudence: for reasons of prudence, between book value and present value, the least of the two will be selected Adequacy: valuation methods should be adequate to (consistent with) the nature of the valuated element
BUSINESS VALUATION
BUSINESS VALUATION (Evaluare economico-financiara) includes: Accounting Valuation
To valuate = a evalua dpdv economic si contabil Valuation (process) = (procesul de) evaluare Valuer = evaluator
To assess = a aprecia, a estima oficial valoarea unei proprietati in scop de impozitare Assessment = estimare oficiala Assessor = persoana care face evaluari de proprietati in scop de impozitare:
To valorize = to maintain the value or the price (of a commodity), especially by subsidies or the governments purchase at a fixed price. Valo(u)r = boldness or determination in facing danger; worth. Valorous = to be worth.
Pricing is the manual or automatic process of applying prices to purchase and sales orders, based on factors such as: a fixed amount, quantity break, promotion or sales campaign, specific vendor quote, price prevailing on entry, shipment or invoice date, combination of multiple orders or lines, and many others. Automated systems require more setup and maintenance but may prevent pricing errors.
Pricing is one of the four ps of the marketing mix. The other three aspects are product, promotion, and place. It is also a key variable in microeconomic price allocation theory. Price is the only revenue generating element amongst the 4ps,the rest being cost centers.
ACCOUNTING VALUATION
Norms, Regulations and Good Practice (1):
International Accounting Standards (IAS), issued by International Accounting Standards Committee (IASC) until April 2001 International Financial Reporting Standards (IFRS), issued by International Accounting Standards Board (IASB) after April 2001
ACCOUNTING VALUATION
Norms, Regulations and Good Practice (2):
International Valuation Standards (IVS), including Guidelines, issued by International Valuation Committee Best Practices (including Professional Ethics and Deontology) created and developed by big international consultancy companies (Big Four, etc.) and promoted by professional bodies as Guidelines and Codes
ACCOUNTING VALUATION
Norms, Regulations and Good Practice (3):
Tradition (Rules of Thumb), especially in Great Britain, United States, Germany and France On this subject, an article is posted and can be downloaded for free from: http://www.ucdc.info/cd/cd_profil.php?cid=1064 as Metodele rapide de evaluare OMFP nr. 1.752/2005 (Monitorul Oficial nr. 1.080 / 30.11.2005), completed and updated
Asociatia Nationala a Evaluatorilor din Romania (ANEVAR) Corpul Expertilor Contabili si Contabililor Autorizati din Romania (CECCAR)
These professional bodies issue technical norms for valuation and promote good practices, ethics and deontology
Historical cost or book value: purchase or production cost plus other expenses (freight, installation, provision, non-deductible taxes) Current (present, actual) cost: updated, nowadays historical cost less depreciation or amortization Net realizable (settlement) value: sale price less sale expenses Present (market) value, a variety of Fair Value
Fair value, also called fair price, is a concept used in finance and economics, defined as a rational and unbiased estimate of the potential market price of a good, service, or asset, taking into account such factors as: 1. Relative scarcity 2. Perceived utility (economist's term for subjective value based on personal needs) 3. Potential risk/return characteristics (i.e., for a tradable asset) 4. Replacement costs, or costs of close substitutes 5. Production/distribution costs, including a cost of capital
Market value is the estimated amount for which a property should exchange on the date of valuation between a willing buyer and a willing seller in an arms-length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently, and without compulsion.
Value added: difference, at each stage of production and trade, between the price of final product and the cost of all factors purchased to make the product. Value added includes: wages, amortization, interest, provisions, taxes and fees, profit.
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The cost of inventories that are not ordinarily interchangeable and those produced and segregated for specific projects are assigned by specific identification of their individual costs The cost of other inventories is assigned by using either of the following cost formulas: Weighted Average Cost FIFO: First In First Out LIFO: Last In First Out
Retail Method: 1. Sales value should be reduced by gross margin to calculate cost. 2. Average percentage should be used for each homogeneous group of items. 3. Marked-down prices should be taken into consideration.
Net Realisation Value (NRV) is the estimated sale price less the estimated cost of completion and costs necessary to make the sale. These estimates are based on the most reliable evidence at the time the estimations are made.
Post-factum = Net Acquisition Value (book value, recognised by the market = Market Value): Aquisition Price of Company less Value of Identifiable Assets Ante-factum (income capitalisation approach) = Discounted Cash Flow (DCF): used only for sale of the business or forecasting purposes, not for bookkeeping.
Discounted Cash Flow (DCF) Method is derived from the future value formula for calculating the time value of money and compounding returns, or the capacity of a business to create over-profit: FV = PV (1 + k)^n
FV = Future Value, after n years PV = Present Value n = number of years of period considered
Valuation of Equity
Net Present Value (NPV): E = A L (E = Equity, A = Assets, L= Liabilities) It represents the value of a company as a whole, calculated by accountants. Market Value (at the Stock Exchange, for listed companies).
Value is an opinion of an expert and merely an interval, it is a base for commencement of bids, auctions and/or negotiations. Price is the final and monetary expression of value and it is fix, precise, firmly determined, stipulated in an offer or in a contract as a result of bids / auctions, negotiations, commodity exchange transactions, etc.
Liquidation Value = The estimated amount of money that an asset or company could quickly be sold for, such as if it were to go out of business. If the liquidation value per share for a company is less than the current share price, then it usually means that the company should go out of business (or that the market is misvaluing the stock), although this is uncommon.
Rule of Thumb = A rule of thumb is a principle with broad application that is not intended to be strictly accurate or reliable for every situation. It is an easily learned and easily applied procedure for approximately calculating or recalling some value, or for making some determination. It comes from tradition, experience and local market conditions.
Fast food franchise = 50% of annual sales Heating, ventilation & air conditioning contractors = 2 times annual cash profits Mail order business = 50% of annual sales + inventory M o t e l = $20,000 times number of rooms.
Input/Entry into Patrimony (investments as owners equity, purchase, conversion/production, subsidy) Inventory (periodical complete factual listing / check of patrimony items assets and liabilities) End of the year, for financial reporting purposes Output/Exit from Patrimony (sale, sponsorship, shareholder withdrawal, etc.)
Pricing System
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Price is the unit of measurement for value Any price includes cost and profit of seller Types of prices on the chain of distribution: Manufacturers price Whole sale price Retail price Export/Import price A previous price is a cost for the next link.
ACCOUNTING VALUATION
ACCOUNTING VALUATION
BIBLIOGRAPHY (1)
ACCA (The Association of Chartered Certified Accountants): Preparing Financial Statements International Stream (Paper 1.1), BPP Publishing, London UK, 2001; Bannock, Graham; Manser, William: Dic ionar interna ional de finan e, Editura Universal Dalsi 2000, Bucure ti, 2000; Boardman, Anthony E.; Greenberg, David H.; Vining, Aidan R.; Weimer, David L.: Analiza Cost Beneficiu: Concepte i practic , Editura ARC, Chi in u, Republica Moldova, 2004; Caplan, Suzanne: Finance & Accounting, Adams Media Publishing House, Avon Massachussetts, USA, 2000; C lin, Oprea; Ristea, Mihai: Bazele contabilit ii, Editura Na ional, Bucure ti, 2001; Collin, P.H.; Jollife, Adrian: Dic ionar de contabilitate englez romn, Editura Universal Dalsi 2000, Bucure ti, 2000;
BIBLIOGRAPHY (2)
International Accounting Standards Board: International Accounting Standards/International Financial Reporting Standards, London UK, 2007, www.iasb.org; International Valuation Standards Committee: International Valuation Standards, Eighth Edition, London UK, 2007, www.ivsc.org; Low, Jonathan; Cohen Kalafut, Pam: Invisible Advantage: How Intangibles Are Driving Business Performance, Cap Gemini Ernst & Young, Cambridge Massachussetts, USA, 2002; Needles Jr., Belverd E.; Anderson, Henry R.; Caldwell, James C.: Principiile de baz ale contabilit ii (edi ia a cincea), Editura ARC, Chi in u, Republica Moldova, 2001; Random House Websters College Dictionary, New York - NY, USA, 2003; Siegel, Joel G.; Shim, Jae K.: Dictionary of Accounting Terms, Barrons Business Guides, Hauppauge New York, USA, 2005;
BIBLIOGRAPHY (3)
Smith Linton, Heather: Business Valuation, Adams Media Publishing House, Avon Massachussetts, USA, 2004; Tra c , Margareta: Evalu ri contabile patrimoniale, Editura Tribuna Economic , Bucure ti, 1998; Ulrich, Dave; Smallwood, Norm: How Leaders Build Value, John Wiley & Sons, Inc., Hoboken New Jersey, USA, 2006; Van Greuning, Hennie: Standardele Interna ionale de Raportare Financiar (edi ie bilingv englez romn ), Editura IRECSON, Bucure ti, 2005.
THE END
From the bottom of my heart: