The calculation of the liquidation value is relevant if it is necessary to sell the assets of the enterprise in a short time. Allows you to quickly sell objects at the best price. The cost must be attractive to potential clients, but not greatly reduced. To determine it, many factors must be taken into account.
What is liquidation value?
Liquidation value- this is the price of the assets of the enterprise, from which the costs of implementation are deducted.
The decrease in value is due to the need to sell objects in a short time, which arose as a result of the following factors:
- companies.
- Necessity of settlements with creditors.
- Sale of the enterprise.
- Optimization of production capacities.
- The need to purchase new equipment to replace obsolete.
- Change in the direction of the enterprise.
Costs for commission fees, transportation, advertising, storage are deducted from the real value of assets. A discount is provided to quickly attract buyers. As a result of all deductions, the value of assets decreases. The market price of objects is almost always higher than the salvage value.
IMPORTANT! Selling at salvage value can be beneficial for an enterprise in financial terms. These cases are typical when there is a strong demand for the asset being sold and an increase in prices for it. In such a situation, the company may sell the object at a cost that exceeds the standard rates.
Varieties of salvage value
The salvage value may reflect various indicators. It is divided into the following types:
- short-term or compulsory. It is formed as a result of urgent sale of objects. Due to the tight deadlines, the cost is reduced to a minimum. This indicator may be required in the settlement of debts that cannot be deferred.
- medium term. A relatively long time has been allocated for the sale of assets. The manager's task is to sell objects at a cost close to the market value. The possibility of postponing the sale allows you to competently conduct an advertising campaign, find buyers.
- Long term. The long-term salvage value is determined when assets need to be written off. In this case, the company will not receive any funds for the objects.
Usually, salvage value refers to the prices for the sale of assets. The price reduction will depend on two variables: the circumstances of the implementation and the professionalism of the manager.
The procedure for assessing the liquidation value
Proper definition of drugs can reduce company costs. In favorable circumstances, the sale of assets can even bring profit. Determining the value can be divided into the following steps:
- Analysis of information obtained from accounting . This information allows you to determine book value assets. As part of the stage, verification of the existence of realizable property should be carried out. The real market value of objects is revealed.
- Determination of implementation costs. It is necessary to establish a list of probable expenses during the sale. These include spending on advertising, placing ads, finding a client. You also need to consider the cost of storing assets. At the second stage, the expediency of the sale is determined. Not always the sale of assets is the best option. If the costs exceed the salvage value, it is easier to destroy the object.
- Development of a liquidation schedule for each facility. A separate schedule for each asset is necessary because some objects are quite simple to implement, while it will take a long time to find a buyer to sell others.
- Determination of the amount of depreciation. First of all, the cost is reduced for those objects that are difficult to implement. An attractive discount plays a role in attracting customers quickly. Assets for which there is a strong demand can be sold at a price close to the market.
- Organization of the sale. Actions are being taken to directly sell the property. They may include advertising campaigns, customer search. If the sale is deemed inappropriate, the property will be destroyed.
It is recommended to bet not on a quick sale, but on maximum receipt profit from the sale. Usually the manager looks for the one maximum cost, at which buyers will appear in the near future. Its specific size is determined by the type of assets. For example, it is possible to sell new equipment, for which there is a strong demand, at market value. With outdated technology, such a number will not work.
Calculation Formula
There are several formulas for determining salvage value. The most relevant is the one that allows you to bring prices closer to market ones:
LS = Market price x (1 - Coefficient for forced implementation)
The coefficient can be 0.1 - 0.5 or 10 - 50%. Its exact value is determined depending on the market price of the asset. The coefficient is set as a result of expert evaluation. It depends on the following factors:
- estimated timeframe for implementation;
- depreciation of equipment and its type;
- market valuation of the asset;
- general situation in the required market segment.
If you spend expert assessment impossible, the coefficient is set to the lower limit. That is, it will be 0.5.
Calculation examples
Enterprise in urgently sells equipment for settlement with creditors. Its market value is 50,000 rubles. The coefficient of forced sale was not calculated, the lower bar was taken as a basis. The calculation of LS will be as follows:
50,000 times (1 - 0.5)
As a result, we get a liquidation value equal to 25 thousand rubles.
IMPORTANT! The coefficient depends not only on the characteristics of the assets, but also on a number of other factors: the timing of the sale, the level of demand. The more opportunities for the implementation of the object, the higher the coefficient will be. As the ratio increases, the salvage value also increases.
Nuances in determining drugs
When establishing the liquidation value, two main errors are observed: overpricing or underpricing. In the first case, the asset will not be bought, which will lead to problems. For example, to the inability to pay off debts. In the second case, the company will not receive the profit that it could receive.
So.
Salvage value is the valuation of an asset for sale at a short notice. Its definition is divided into a number of stages, during which the issue of the feasibility of implementation is decided. PV is calculated on the basis of a formula in which the market value of assets appears. The evaluation results depend on many factors, including the technical characteristics of the object, the demand for it, the time allotted for implementation.
- professional activities of representatives of the state, its subjects, individuals and organizations, aimed at obtaining the average value of the value of a particular property.
Representatives can be individuals who have undergone appropriate training and are licensed by state certificates of organizations that carry out professional activity for the performance of tasks of a federal or private nature.
It is important to understand that the article describes the most basic situations and does not take into account a number of technical issues. Get legal advice to solve your specific problem. housing issues hotlines:
Valuation activities in the territory of the Russian Federation are regulated international agreements, regulations subjects of the Federation and "On appraisal activities" dated July 29, 1998
This standard distinguishes two main methods for determining the value of property:
- . Based on a marketing basis - the optimal calculation of the price of a building for its alienation on open market excluding sale period.
- liquidation. It is based on the definition of a specific value of the value of real estate, for which it can be sold in the shortest possible time.
What is the salvage value of an apartment? This is a specific value for calculating the price of an apartment, which depends on the speed of the process of alienation or transfer of real estate to another person. The need to carry out this method of property valuation arises in connection with the bankruptcy of a legal entity, unpaid debts individual or transfer state property for temporary or permanent use.
Liquidation value, its definition and implementation is carried out in the initial period of alienation of property rights:
- For physical and legal entities as a result of writing off for debts or when dividing property into shares. For example, when property is confiscated through a court.
- For subjects of the federation and the state, when transferring property into the possession of private individuals - liquidation or provision of housing for long-term rental.
Liquidation value estimation methods
The cost of the forced sale of an apartment is determined in accordance with the commercial price of real estate, taking into account the deduction of losses that could arise in the process of preparing and implementing the alienation of property.
When determining the value of the property price, in the usual case, two main methods are used:
- Straight.
- Indirect.
direct way– method comparative approach. Its main function is to get a result by direct comparison of the price value of a particular object with analogues. This method is used in real estate companies. They have statistics on the actual amount of home purchases and can accurately determine salvage values.
Indirect way- the procedure for obtaining the required amount by analyzing the market price of the apartment. When identifying the average indicator commercial value real estate object, the cost of the cost of its liquidation is deducted.
For an individual or organization that does not have objective information about the real market turnover in the field of real estate, it is preferable to use the indirect method of obtaining the salvage value of housing.
Liquidation value calculation
Liquidation value calculation when using the indirect method of analysis, it is calculated by the general formula:
L = W*K, where:
- L is the amount to be calculated.
- AT- the value of the market value of the object in question.
- To- correction factor.
liquidation deduction is the most significant concept affecting the final amount of real estate appraisal. When asked how to calculate a deduction - a discount for the liquidation of residential property, the following factors should be taken into account:
- exposition period. The actual period for which it is necessary to exercise the property right to liquidate property.
- Attractiveness for the investor. Individual characteristics of housing are considered, whose functionality may affect consumer interest in the product.
- market liquidity. Marketing concept: the higher the price of the object, the less potential customers.
- Subjective features. Possible expenses incurred as a result of the preparation or sale of real estate are taken into account. For example, an inventory or a need to restore technical passports on property.
The liquidation value of objects is determined on the basis of their market value in accordance with the concept of forced and accelerated sale of objects. The calculation was made using " methodological recommendations property valuation and property rights under conditions of forced implementation and a reduced exposure period (based on the GMLV method)”, developed by Galasyuk V.V. and Galasyuk V.V.
The liquidation value of the object is determined on the basis of its market value according to the formula:
where V L is the salvage value of the appraisal object corresponding to a fixed period of its exposure (t f), which is shorter than a reasonably long exposure period;
V m is the market value of the appraisal object, reduced by the amount of costs associated with the sale of the collateral;
k L is the ratio of the liquidation and market value of the appraisal object;
t d – discount period (years);
m is the number of interest accrual periods during the year;
i is the annual discount rate used in calculating the salvage value (expressed as a decimal fraction);
K e is a coefficient that takes into account the effect of price elasticity of demand on the salvage value of the appraised object.
The first step in determining the liquidation value of an object is to determine the market value, reduced by the amount of costs associated with the sale of the collateral. The market value of the appraisal object (Vm) is determined in accordance with the requirements of the current legislation.
The market value of the subject property is determined in paragraph 8 of this report and is presented in Table 30.
Costs associated with the sale of the collateral. This article expenses form such expenses as commissions of appraisers and lawyers, consultants, administrative costs until the completion of liquidation, etc. The level of these costs is taken equal to 10% of the received market value.
The second step in determining the salvage value of an object is to determine a reasonably long exposure period for this object. A reasonably long period of exposure of the object of assessment (t r) can be determined based on available market information or by conducting surveys of relevant market operators, specialists, etc.
The exposure period was determined based on the liquidity of this property. According to market reviews commercial real estate Tula agencies, in order for objects similar to the one estimated in terms of scale and purpose to find their buyer, an exposition period of 6 months is required. Thus, t r \u003d 6 / 12 \u003d 0.5 (years).
The third stage in determining the salvage value of an object is the establishment of a fixed exposure period for this object (t f).
It should be taken into account that if there is an internal economic compulsion to implement the object, the latter predetermines the need to establish the minimum possible fixed exposure period of the object (t f), which can conditionally be equated to zero: t f = 0.
In accordance with the Instruction of the Central Bank of March 26, 2004 No. 254-P "On the procedure for the formation credit organizations provisions for possible losses on loans, loan and equivalent debts” a loan can be considered secured, in particular, if all legal documentation in relation to the bank’s collateral rights is drawn up in such a way that the time required for the implementation of the collateral does not exceed 180 days from the date, when the realization of security rights becomes necessary for the bank. The need to exercise security rights arises no later than on the 30th day of delay by the borrower of the next payments to the bank on the principal or interest. Taking into account the liquidity of the property being valued, t f is taken in our case in the amount of 90 days (in further calculations - 3 months). Thus, t r \u003d 3 / 12 \u003d 0.25 (years).
The fourth step in determining the salvage value of an object is the calculation of the discount period (t d), which is carried out using the results of determining a reasonably long exposure period (t r) and a fixed exposure period (t f), according to the formula:
Thus, td = 0.5 - 0.25 = 0.25 (years).
The fifth stage in determining the salvage value of an object is to determine annual rate the discount used in calculating the salvage value.
Any real estate object has a limited period during which its operation is economically feasible. The income generated by the property during this period must be sufficient to:
Ensure the required level of return on invested capital (rate of return or discount rate);
Recoup the owner's initial investment (return on capital).
In accordance with this, the capitalization rate includes two components - the rate of return on capital (discount rate) and the return on capital.
In clause 7.4. of this report, the appraisers determined the capitalization rate using the market extraction method, taking into account the gross rent multiplier. The capitalization rate is 14.62% for commercial properties. Thus, to determine the discount rate, it is necessary to calculate the rate of return on capital.
The real estate object has a finite (limited) economic life (the period during which the operation of the object is physically possible and economically profitable). The income generated by the property must compensate for the loss of its value by the end of its economic life. Quantitatively, the amount of income required for such compensation is expressed through the rate of return of capital.
There are three ways to calculate the rate of return on capital:
1. Straight-line capital return (Ring's method): involves the return of capital in equal installments over the life of the asset, the rate of return in this case is the annual share of the initial capital allocated to an interest-free compensation fund.
2. Return of capital at the compensation fund and the risk-free rate of interest (Hoskold's method): assumes that the compensation fund is formed at the lowest possible rate - the "risk-free" rate.
3. Return of capital on the recovery fund and the rate of return on investment (Inwood method): assumes that the recovery fund is formed at an interest rate equal to the rate of return on investment (discount rate).
This assessment uses the Hoskold method, which, according to the appraisers, is the most suitable for investment conditions in Russia
where NVK - the rate of return of capital,%;
i is the risk-free rate;
n is the average period of ownership of the object. The appraisers made the assumption that the term of ownership of the property being valued would be 20 years.
To determine the risk-free rate, you can use both the average European indicators for risk-free operations and Russian ones.
It is customary to consider the following instruments as possible risk-free rates within the Russian Federation:
Rates on deposits of Sberbank of the Russian Federation and other reliable Russian banks. The application of rates on deposits of the Savings Bank of the Russian Federation and other Russian banks is quite limited due to the short periods for which deposits are accepted (as a rule, up to two to three years). All this narrows the possibilities of using these tools;
Western financial instruments (government bonds developed countries, LIBOR). Difficulties when using the LIBOR rate (Libor Inter Bank Offered Rate - the rate of the London interbank market for the provision of loans) is due to its short duration (no more than one year), as well as more high levels risk compared to investments in public securities. Among government bonds in valuation practice, it is most expedient to use 10-year US Treasury bonds;
Interest rates on Russian interbank loans (MIBID, MIBOR, MIACR). Rates are calculated for a period of 1 day to 1 year. It is obvious that the use of the values of these rates for calculating risk-free returns is not appropriate, primarily due to their short-term nature. In addition, the yield inherent in interbank loans takes into account the risk of their non-repayment, which also necessitates the abandonment of the use of this tool in the evaluation process;
Refinancing rate - interest rate, which is used central bank when granting loans commercial banks under refinancing. This rate could on my own economic essence may be used only in assessing credit and financial institutions, as well as the refinancing rate is a tool monetary policy Central Bank and, therefore, is used by the latter for targeted impact on the financial and banking sector and does not always reflect the real situation on the market;
Effective yield to maturity of government bonds of the Russian Federation. Government bonds of the Russian Federation are represented by ruble and foreign currency financial instruments. During the financial and economic crisis, confidence in the ruble bonds of the largest Russian companies decreased significantly, so at the moment it is quite difficult to consider them as risk-free investments. In this regard, in this report, as a risk-free rate, average rate effective yield redeemable on government ruble bonds.
Based on the analysis of data from the website www.rusbonds.ru, the Ministry of Finance of the Russian Federation was chosen as the most reliable issuer. For quotations of ruble-denominated government bonds with maturities in 2012-2027. as of February 15, 2012, the average rates of effective yield to maturity were determined. The arithmetic mean of these values is used as the risk-free rate in determining the rate of return on capital.
Figure 2 - Quotes of government bonds with maturities in 2012 - 2027
Table 31. Calculation of the average effective yield to maturity on Russian bonds with maturity dates 2012 - 2027
The salvage value is the price for which any object is sold on the market in certain deadlines. It is always below market value.
Also, the liquidation value is an indicator that occurs when there are some extraordinary circumstances that affect changes in the normal market situation (for example, when
Factors affecting the salvage value:
The economic situation in the market;
The direct dependence of the cost of liquidation on the period of sale of the subject, known as the "exposure period". It depends on the type of property, the initial cost of implementation and the level of demand;
The level of attractiveness of the subject in the market, which is determined by specific characteristics. It depends on the demand for a particular type of objects.
It is determined in such cases:
The enterprise faces the threat of bankruptcy;
The business entity showed an excess of the liquidation value of the company over the one that will be in the process of carrying out activities.
Methods for assessing the cost of liquidating an entity
1. The direct method involves the calculation of the salvage value using (direct comparison with similar enterprises and the method of correlation and
2. Indirect method, which involves the calculation of the cost through market value. In this case, the salvage value is market price minus the cost of the factor of forced sale of the enterprise. It is precisely in determining the value of this factor that the main difficulty lies. Therefore, basically, in the domestic market, the cost of forced sale is determined by an expert.
Liquidation value in a crisis
In the event of the slightest instability in the economy of the state, factors begin to influence the price of business entities, the main of which is the limitation in the timing of implementation. Therefore, the liquidation value is an indicator that is quite relevant in a crisis.
So, if the market situation is characterized by some stability, then the so-called "exposure period" can be determined by specialists based on statistical information. In the presence of a complex unstable situation, such a calculation will no longer be characterized by accuracy and reliability. Therefore, it is advisable to use in this case. We should not forget the fact that the accuracy of the assessment of the cost of liquidation depends on the professionalism and experience of the appraiser.
The concept of "liquidation value" can be applied both to a business entity as a whole and to its individual components. An example is the assessment of the cost of liquidation of fixed assets. All the methods and factors listed above can be applied to this object.
