Leg Pain Before Ovulation

Business Valuation through heritage approach (simplified case)

There are many methods of business valuation. One of the most commonly used approach is heritage which assumes that the company is worth what it has.

This method is preferred in societies where the share of assets (tangible, intangible and financial) is important
- trade activity and distribution
- industrial
-
holding companies - financial activities (banks, institutions credit)
- property companies

We will examine this approach using a simplified example to understand the major joints.

a corporate presentation YZ

YZ is a family holding company which owns three assets:
- A goodwill consists of a certificate not operated in an industrial product
- A building in Paris
- A financial contribution of 10% in an industrial society V listed.

Balance at 31/12/2006
In M €



Net Assets Intangible asset 50
Land and Construction 100 10

Immobilization Financial receivables Inventories
1 2
Cash (cash) 7 Total

: 170

Liabilities

Capital: 30
Reserves : 40
medium term debts: 100

Total: 170

2 Calculation of the net assets

A first step in our evaluation is the calculation of the ANC (Net Asset):

ANC = total assets - liabilities - Other current liabilities = capital + reserves + profit carried forward

In our example:

ANC = 170 to 100 = 30 + 40 = 70

This is a static approach based on a historical record, at time T and therefore has no real connection with market values.

3 Calculation of assets Net Value (NAV)

We will correct the historical values for the figures to their real value

3.1 Assessment of intangibles

Several evaluation methods can be used. In our example, intangible assets consist only of a patent unexploited.

We will use the method of valuation of patents by research costs. The patent is weighed against the cumulative costs of research were necessary to its development. Indeed, insofar as the patent is not yet exploited, we can analyze the patent in relation to profits made.

In our example, research costs are estimated at € 55 million. Is a correction of 5 M € (55-50) over the book value at 31/12/06.

3.2 Fixed tangible

In our example, we estimate the notary of the building in Paris which is 150 M €.

Either a correction of +50 M € (150-100).

3.3 Correcting financial assets

Generally, the equity side are evaluated by reference to their stock price. Others may be by reference to quoted companies in the same sector.

In our example, the price at the valuation date is 110 euros per share. Our Holding owns 100 000, or 110 million euros.

The correction is therefore € 10 million (110-100).

3.4 Calculation of the ANR ANR

ANC = + unrealized capital gains - unrealized losses

This definition does not take into account the deferred taxes on capital gains and losses on disposal. It assumes that the company does not dispose of assets generating capital gains. We are in a logic of continuity of operations.

ANR = 70 + 5 +50 +10 = 135 M €.

The valuation of the company according YZ heritage approach is € 135 million.