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wages of employees, trade payables, and other flat-rate payments
necessary for operation total CZK 2,604,181. The resulting value
of the asset value of the Association XYZ is shown in Table 1.
Tab. 1. Asset value of Association XYZ as of 31 December 2017
Assets
Value
Inventories
CZK 2,522,172
Fixed tangible assets
CZK 2,307,411
Short-term tangible assets (low-value)
CZK 52,579
Financial assets
CZK 543,095
Gross value
CZK 5,425,257
Liabilities (-)
CZK 2,604,181
Net value
CZK 2,821,076
Source: Own processing.
Subsequently, in accordance with the methodology, the cost of
equity was determined. It was determined using the build-up
model described in the methodology. The individual values from
the Czech National Bank (2019) data (the value of the ten-year
state bond yield was available only for the period of 10/2017 at
the time of the survey) and the Ministry of Industry and Trade
(2017) of the CR are given in Table 2.
Tab. 2. Items for calculating risk-free yield (r
e
) according to
Ministry of Industry and Trade
Item
CZ NACE 55
Risk-free yield
1.45%
Business risk margin
2.65%
Financial stability margin
1.87%
Company size margin
1.09%
Source: Czech National Bank (2019) and Ministry of Industry and Trade
(2017), own interpretation.
On the basis of the Czech National Bank (2019) and the Ministry
of Industry and Trade (2017) of the CR data, cost of equity (r
e
)
was determined at 7.06% (using Formula (1)). This was
followed by the calculation of phase 1 and phase 2 of the yield
value using the DCF method. Considering the current
development of the Association XYZ, only a short time can be
expected to be required for the stabilization of all components of
business which results in a rather short duration of the 1
st
valuation phase. The length of phase 1 was thus set at 3 years.
For calculating phase 1 of the yield value, Table 3 was compiled,
which contains the input calculation values for the whole
duration of this phase.
Tab. 3. Current value of phase 1 cash flow
2018
2019
2020
Free cash flow after
tax [CZK]
198,049.35 202,010.34 206,050.55
Discount rate [%]
7.06
7.06
7.06
Current value of
cash flow [CZK]
184,989.12 176,245.94 167,915.99
Source: Own processing.
On the basis of the input values, the value of phase 1 was
calculated at CZK 529,151.06 in accordance with Formula (2).
For the calculation of phase 2, it was necessary to use the values
for the year following the end of phase 1. In this case, it was the
year 2021. Free cash flow after tax was determined at CZK
210,171.56 with the same discount rate (7.06%). The value of
phase 2 was calculated using Formula (3) (CZK 3,384,867.82).
After adding up the values of phases 1 and 2, the yield value of
the Association XYZ was set at CZK 3,914,019.
At this point, the value of the Association XYZ´s intangible
assets could be determined in accordance with our methodology.
−
=
(4)
3,914,019 −2,821,076 =,,
In words: one million ninety-two thousand nine hundred and
forty-two Czech crowns
6 Conclusion
After analysing the assessed Association XYZ, for the purposes
of its tangible assets valuation, asset-based approach was
chosen; based on its character, it was direct comparison
approach, flat-rate method, or valuating the assets in nominal
amount. Using the two-phase alternative of the DCF method, the
yield value of the Association XYZ was determined.
Subsequently, intangible components of the Association´s assets
were calculated as a difference between the yield and asset
value. Using this method, the intangible and tangible
components of the overall Association´s value were separated.
Considering the fact that there is a certain yield potential in the
Association XYZ, its value equals to the sum of the tangible and
intangible components of business at the total amount of CZK
3,914,019 as of the valuation date (31 December 2017). All
these assets will be transferred to the newly established
successor´s organization (public limited company).
Based on the methodology used, the value of intangible business
components was determined at CZK 1,092,943 CZK. It is the
value of the company that was not in the Association´s accounts,
as was already mentioned above. This value will be transferred
in the newly established limited company as an intangible assets
item. This will cause that the newly established limited company
will not “start from scratch” and will achieve the stabile phase in
its life cycle much faster. However, the value of the company´s
intangible assets will decrease and thus additional intangible
assets (e.g. in the form of new customers) will have to be
generated by its own activity so that the expected decrease is
compensated.
It can be stated that the method of determining the intangible
component of the model Association´s asset appears to be
applicable. The objective of this contribution was thus achieved
with a positive result and at the required extent. It shall also be
stated that it is a relatively simple calculation method, and its
applicability can be assumed even in other fields of
entrepreneurship for valuation of intangible components of other
companies´ business. This is considered to be the greatest
contribution of this article.
A given valuation of an intangible asset can be used in a
"business transformation" situation, whether it is a right
transformation (by law) or false transformation, as in this case,
in a situation where the previous business ceases or completely
ceases business in the industry/area and the subject matter of the
valuation are the intangible components of the business, where
the successor entity follows the past business (the word
successor is meant in a broader context).
There are other applicable methods that shall be tested on other
suitable companies. In this field, there are many opportunities
for doing so and it shall be a subject of further research.
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