AD ALTA
JOURNAL OF INTERDISCIPLINARY RESEARCH
scale. Amortization scale represents the residual percentage
value of assets by the time of their purchase.
The last item that constitutes the asset value of the Association
XYZ is its financial assets together with its receivables and
liabilities. Due to the fact that the chances of acquiring overdue
receivables decrease with the increasing period of time, while
the costs of recovery grow, the valuation will not include the
receivables with a maturity longer than 1 year. Such receivables
usually become irrecoverable.
Yield value perceives a valued company as a system, a set of all
tangible and intangible items necessary for doing business and
achieving the economic results that are and will be achieved.
Yield method will be performed using the discounted cash flow
method (DCF) in a two-phase variant. The newly established
limited company requires the adaptation of the existing
economic results of the Association XYZ, which can be
appropriately incorporate in the DCF method using a financial
plan.
The discount rate in using the DCF equity method corresponds
to the alternative cost of equity (r
e
). For valuation, complex
build-up model will be used that will draw on the data on the
Czech market released by the Ministry of Industry and Trade of
the Czech Republic that react to the specifics of the Czech
market. The calculation is based on the identification of possible
risks, and the subsequent sum of several partial risk margins and
risk-free long-term state bonds rate. The calculation of the cost
of equity is shown in the formula (1). The individual items for
calculating cost of equity will be obtained from the Czech
National Bank and Ministry of Industry and Trade data for the
1
st
-4
th
quarter of the year 2016 (since no data from a period
closer to the valuation date is available) according to the code
CZ NACE, group “G” (Wholesale and retail).
=
+
+
+
(1)
Where:
r
e
cost of equity,
r
f
risk-free yield,
r
pod
risk margin for business risk,
r
finstab
risk margin for financial stability,
r
la
risk margin for company size.
Yield value of the Association will be calculated as a sum of the
value of phase 1 and phase 2. The individual calculation steps
can be seen in Formulas 2 and 3. Yield value in phase 1 will be
calculated according to Formula 2:
= �
(1+
()
)
=1
(2)
Where:
H
company value,
FCFE
t
Free cash flow to equity in the year t,
N
VK(z)i
cost of equity at specific debt in the year i.
Subsequently, phase 2 will be calculated using the Formula 3.
=
+1
()+
−∗
1
(1+
()
)
(3)
Where:
T
number of year in phase 1,
g
growth rate in phase 2.
4 Intangible assets
Intangible asset is one of the essential components of business. It
can consist e.g. of licenses, copyright, software, brand, know-
how or goodwill. During its existence, Association XYZ has not
made any reference to intangible assets in its accounts, but it is
clear that the intangible assets created by own activity in the
form of know-how and goodwill is of key importance for the
incoming legal person. Due to taking over the existing customer
base, business relations, experience, and employees, the
incoming legal person can to a large extent reduce the initial
introductory and growth phase, thus building on the existing
activity and development of the Association XYZ, which is
already in the maturity phase. The maturity phase is
characterized by a more stable customer base, stabilization of
relations with suppliers as well as building the internal processes
and management systems of the whole company and achieving
adequate profitability. In the maturity phase, the development of
the company is slower, and the business policy focuses more on
retaining the customers than on gaining new ones; most changes
are evolutionary in nature and conceptually planned in the long
run.
To identify and measure the advantage that the newly established
limited company will have from taking over the intangible
components of the business, there are two possible different
approaches. The first approach consists in determining the
intangible asset value as a difference between the revenue and
asset value of the Association XYZ. This approach assumes the
dissolution of the Association XYZ and taking over all the
intangible components of the business by the newly established
limited company, which corresponds with the expected
development of the Association XYZ. The second approach is
so-called licensing analogy, which is based on quantification of
the difference between the expected economic results of the
newly established limited company when using or not using the
relevant intangible components of the business. This method
requires preparation of the company financial plans when using
or not using the intangible components of the business until they
are equal to each other or at least close to the expected economic
result. It can be stated that in the long term, the value of
intangible components of the business gradually decreases, e.g.
as the customers accept the person in the business, the share of
taken know-how decreases to the new know-how created by the
own activity, etc.
In the case of the Association XYZ, the first approach will be
used, that is, first the return value of the Association XYZ will
be determined on the basis of the financial plan, subsequently,
the asset value will be calculated based on the market.
5 Results
Overall, according to the historical financial indicators, it can be
said that the Association XYZ appears to be a financially sound
company without any significant hidden threats. As of the
valuation date, that is 12 December 2017, the current inventory
was determined (based on their inventory and the purchase price)
at the value of CZK 2,522,172.
The fixed tangible assets of the Association consist of
automobiles and one special tablet. The automobiles were valued
using the CebiCAT GT software, and the value was determined
at CZK 2,285,922 CZK, while there was still a debt on three
automobiles purchased on credit at the total amount of CZK
309,130.01 CZK (specifically, CZK 40,448.98, CZK 84,830.09,
and CZK 183,850.94). The above mentioned tables (purchase
price CZK 53,722.38) was, taking into account the purchase date (15
September 2014) and its lifetime (5 years), valued at the total
residual price of CZK 21,488.95 CZK. By adding these two valued,
the fixed tangible asset was valued at CZK 2,307,411 CZK.
Fixed tangible low-value assets were valued based on the
amortization scale. Since these assets are of different age, which
was determined according to the date of purchase based on the
invoices available, the value of these assets was calculated at
CZK 52,578.79. It was a total of 16 items (electronic and
computer technology) that was purchased in the period between
February 2010 and the valuation data, and was still used by the
Association XYZ. The purchase prices ranged between CZK
269.7 and CZK 7,484.
The value of the financial assets was set at CZK 543,095 after
adding the cash balance, bank account, and two fuel cards. The
liabilities of the Association XYZ including vehicles loans,
- 289 -