Constant increase in construction volumes in major cities led to an explosive growth in the construction industry and a sharp increase in the number of individual companies involved in the construction business. Construction, like any other business, implies a constant movement of capital, one of which forms is the sale and purchase construction firms. When a company changes hands, the question always arises of a fair monetary compensation to its owner for the assignment of ownership of this company. If the transaction occurs in an open, competitive market, while both the buyer and the seller act reasonably, without coercion, each in their own interests, then the transaction price will be equal to the market value of this company.
Grade market value
construction organizations has its own characteristics. As you know, the value of a business can be determined by three approaches - costly, comparative and profitable.
However, in the case of a valuation of a business based on the provision of services (namely, this type includes Building bussiness), the cost approach is ineffective. Indeed, the main value of a construction company lies in its position in the market, which gives it the opportunity to regularly receive construction contracts. The higher the "contract potential" of the company, the greater its profit, and, consequently, the market value. The value of the assets of the construction company is not high, as a rule, and if the value of the company is determined based on the market value of assets, as the cost approach to valuation does, the market value of the business will be significantly underestimated. The only case when applying the cost approach to business valuation is justified is a pre-bankruptcy situation, when the company experiences a chronic shortage of orders, and the prospects for further obtaining new construction contracts look uncertain.
Business valuation of construction companies best done using income approach methods, which relies on both historical and forward-looking data on the income and expenses of the construction company for certain period, while the depth of the retrospective analysis should be at least 3 years, and the forecast period - at least 2 years. A retrospective analysis of the enterprise's activities is very important, since it allows you to create an objective basis for further forecasts and reasoning. For example, if an enterprise has shown stable growth over the past 5 years net profit by 30% per year, then with a high probability this pattern may continue in the future. Therefore, when making a forecast of business income and expenses for the next 2 years, the appraiser can more reasonably determine the forecast values of net profit for the forecast years. This valuation method is suitable for determining the market value of any business related to the provision of services, including construction services.
Comparative methods of valuation of the construction business can also give good results, but the possibilities of practical application comparative approach limited by the lack of reliable information on sales of similar enterprises. Really, sellers and buyers of construction companies are not inclined to disclose prices transactions - as a rule, price information in these cases does not go beyond a narrow circle of participants. On the organized securities market, the shares of construction companies are practically not circulated, so it is not possible to obtain information about sales here either.
In this way, The most reliable way to evaluate the business of construction companies is the income approach.
Moscow 2013
Chapter 1. Theoretical basis construction company business valuation
1.1. Characteristics and features of the business of a construction organization
According to the author's interpretation, it is proposed to understand a business as a combination of a material component, represented by an enterprise as a property complex, and an intangible component, characterized by the efficient use of available resources. At the same time, the purpose of a business is to create and increase the wealth of its owners or, which is the same, the value of the business.
The existing definitions of business as an activity aimed at making a profit do not take into account the fact that resources are consumed in the process of making a profit, which is an omission.
At the same time, it is impossible to identify business and enterprise as a property complex. The concept of "business" cannot be reduced to a set of raw materials and equipment for the production of certain products. The resulting profit will largely depend on how effective the actions to organize the work of the property complex are.
In this regard, the author expressed the thesis about the impact of business efficiency on its market value. According to the author's point of view, business efficiency is considered as the main criterion for its market value.
The author presented the relationship (Fig. 1) financial indicators business and its market value, which characterizes the integral nature of the value indicator . The purpose of any investment, modernization of production and the organizational structure of the business, mergers and consolidations is to increase sales, reduce production costs, i.e. increase profits, assets and, as a result, the value of the business. Business value growth rates reflect the effectiveness of business development.
Fig.1. The relationship between financial indicators of a business and its market value.
The use of generally accepted financial indicators of a business and the determination of its market value make it possible to substantiate the areas in which the company's management should focus its efforts in order to make adequate financial decisions to provide the business with competitive advantages and increase its value.
1.2. Analysis regulatory framework and information base construction company assessments
The assessment has been carried out and this report has been prepared in accordance with the current
legislative and regulatory documents:
Problems of diagnosing the competitive position of any economic entity hard to overestimate special influence such economic factor activities as competition in various forms of its manifestation. And, despite the significant interest in this problem, the methodology for diagnosing competitive confrontations and their components, trends in the position of enterprises on market segment and many other issues require concretization, as well as taking into account domestic differences when introduced into management practice. In the construction market, competition manifests itself in such a variety of forms (specific, price, seasonal bursts of competition, etc.) that conclusions about the diagnosis of the state of an economic entity are possible only on the basis of the results of multilateral studies of activity. The problematic aspects of economic diagnostics within the framework of a competitive position also include business valuation, which is directly related to the formation stock market in the country as a necessary element of an integrated economic system. This aspect of diagnosing most often refers to a separate task of entrepreneurship, but it is fully a component in the system of factors that determine the state of an economic entity.
1.4. Analysis of existing approaches and methods to business valuation of a construction organization
Federal Standard of Evaluation " General concepts valuation, approaches and requirements for valuation (FSO No. 1), approved by Order of the Ministry of Economic Development of Russia dated 01.01.2001 No. 000, defines the income approach as “a set of methods for estimating the value of an appraised object based on determining the expected income from the use of an appraised object” .
When applying the discount method, the future income streams of each period are recalculated to present value by discounting using the appropriate discount rate. The discount rate is a measure of how investors evaluate their return on invested capital, taking into account the risk of generating income specific to a given object. The discounted income method is usually applied to objects that have unstable income and expense flows.
When using the direct capitalization method, the amount of income for a typical year of operation of the object is divided by the corresponding capitalization rate. The capitalization method is most applicable to objects, net income, from the use of which are constant or change at a constant rate.
The capitalization rate is determined, as a rule, on the basis of market data by identifying the relationship between annual income and the cost of similar objects. It is also possible to use the method of cumulative construction.
Construction in progress
The use of the income approach to value properties requires a developed rental market for similar assets, or information about the operation and profitability of businesses in similar properties.
Knight Frank notes that, despite some uncertainty in the market, construction activity is on high level, and in 2013 an increase in the commissioning of new office space is predicted. The vacancy rate has reached the pre-crisis level. In 2013, an increase in investor interest in high-quality development projects at various stages of implementation is expected.
In view of the foregoing, the Appraiser concluded that the income approach can be used with a reasonable degree of certainty to determine the value of an asset under construction in this appraisal. When performing calculations using the income approach, the discounted cash flow method was used.
Movable property
income approach requires a forecast of future income for the remaining life of the objects of assessment. It is difficult to solve this problem directly, since income is generated by the entire production system, which, along with the movable property being valued, includes other fixed assets that are not included in the object of appraisal - a hotel building, a kitchen and a dining room, land plot etc.
Based on the foregoing, the Appraiser decided to abandon the use of the income approach to determine the market value of movable property.
Cost approach, in definition federal standard FSO No. 1 is a set of valuation methods Comparative approach, in the definition of the Federal Valuation Standard FSO No. 1, is a set of methods for estimating the value of an appraisal object based on a comparison of the appraised object with analogue objects of the appraised object for which there is information about prices. An object-analogue of the appraised object is an object that is similar to the appraised object in terms of the main economic, material, technical and other characteristics that determine its value.
The comparative approach is based on the principle of substitution: the buyer will not pay for an object more than the amount required to purchase a similar object on the market with the same utility. The prices paid for identical or similar objects serve as the initial information for calculating the value of the object being valued.
The comparative approach is applied, as a rule, if there is a sufficient amount of reliable information about sales transactions or price offers.
This approach is implemented through a series of successive steps:
Collection of data on sales of objects similar to the object of assessment. It is only through the analysis of these data that it can be said to what extent real prices reflect the market value;
Comparison of the evaluated object and analogue objects for individual elements of comparison;
Adjustment of the actual sales prices of compared objects by comparison elements. Adjustment is carried out from the analogue to the evaluated object.
Once prices have been adjusted, they can be used to determine the value of the property being valued.
In foreign practice, it is generally accepted that an assessment based on this approach gives the most reliable results, which is due to a stable state of the economy, a well-developed market and reliable information about completed transactions available to appraisers.
The degree of similarity of the object of assessment and analogue, as in the cost approach, is determined by the elements of comparison. In this case, the elements of comparison are not only a characteristic of the objects of comparison, but also a characteristic of transactions that cause changes in value.
Comparison elements are combined into groups:
Characteristics of the object: functional purpose, technical parameters, manufacturer, quality (certificate of conformity);
Condition of the object: age, cumulative wear, technical condition, completeness, presentation;
Location: the geographical location of the object, the physical location of the object within the enterprise;
Market conditions: decline or rise, the ratio of supply and demand;
Terms of sale: time of sale, place of sale, average market exposure time;
Characteristics of the prices of analogous objects: availability concessional lending, the presence in the price of transport and other costs of the seller.
This valuation approach is based on the determination of market prices that adequately reflect the "value" of the object in its current state. The main principle used is the comparison to be made:
With an exact analogue sold on secondary market;
An approximate analogue sold on the secondary market, with corrective amendments in the absence of an exact analogue;
An important step in using the comparative approach is the selection of comparable analogues and the use in the calculations of corrections for the difference in the technical indicators of analogues and the object being evaluated.
The main problems of this approach are due to the difficulties in obtaining the necessary information, namely current market prices, creating databases, with the choice of analogues that are adequate to the objects being evaluated, taking into account the degree of mismatch in the composition and numerical values of the characteristics of analogues and the objects being evaluated.
Applying a comparative approach, in the presence of a sufficient amount of reliable information on the sale of analogue objects, it is possible to obtain the market value of the object being valued as accurately as possible for a particular market.
A necessary prerequisite for applying the methods of the comparative approach is the availability of information about transactions with similar real estate objects (that are comparable in purpose, size and location) that took place in comparable conditions (time of the transaction and conditions for financing the transaction).
The main difficulties in applying the methods of the comparative approach are related to the opacity Russian market real estate in terms of disclosing information about the real prices of transactions. In this situation, the Appraiser can focus on the prices of proposals, since a potential buyer, before making a decision to purchase an object real estate, will analyze the current market offers and come to a conclusion about the possible price of the property, taking into account all its advantages and disadvantages relative to the objects of comparison.
There are practically no comparable properties under construction on the market. Due to the limited information available in the public domain on objects of construction in progress of a similar functional purpose, the application of appropriate adjustments will not allow to calculate the market value with a sufficient degree of reliability.
The use of constructed buildings accepted for operation as analogues, with a subsequent proportional decrease in the offer price of analogue objects by the degree of incompleteness of the object of assessment (by 62%: 100% - 38%), will not allow taking into account market risks associated with the organization of the completion of construction, the process of putting the facility into operation.
Thus, having analyzed the volume and degree of reliability of the available information necessary for conducting a valuation using a comparative approach, the Valuer came to the conclusion that a comparative approach cannot be implemented within the framework of this valuation.
In 2012, the expert council assessed the company's achievements in expanding the range of services at a new qualitative level, taking into account the needs of the market and maximizing customer satisfaction, which was noted Diploma of the laureate of the Republican competition "The best goods of Bashkortostan".
2.2. Analysis of the financial and economic activities of a construction organization
Key performance indicators of the Construction Company in 2011.
Table 1
Financial indicators for 2011:
Name | Indicators, thousand rubles |
Net profit |
table 2
(balance sheet minus loans, payables, deferred tax liabilities)
Long term assets
(fixed assets, construction in progress, intangible assets), including:
fixed assets
unfinished production
Current assets:
Accounts receivable
Cash
(reserves, accounts receivable, cash), including:
(including 436,606 costs in unfinished production, 40,907 finished products, 182,295 raw materials and supplies)
598 unfinished, 98 736 finished pr., 227 921 raw materials)
Short term financial investments: - loans to legal entities
Accounts receivable
LIABILITIES (sources of formation of funds of the Construction Company) |
||||
Name | Indicators for 2011, thousand rubles | Indicators for 2010, thousand rubles | Changes, thousand rubles | Changes, % |
Sources of own funds | ||||
Additional and reserve capital | ||||
Unallocated | ||||
Credits and loans | ||||
Accounts payable |
Analysis of the composition and structure of the balance sheet shows that for reporting year balance sheet decreased by tys. rub. (2 percent), this indicates an increase in the cost of work performed. The value of the net assets of the Construction Company, characterizing the value equity, for the year increased by natys. rubles (18%) and at the end of the reporting year amounted to thousand rubles. Net assets far exceed authorized capital. This characterizes positively financial position on this sign.
Market value assessment construction works
Determination of the market value of the actual work performed
Determination of the market value of construction works, valuation of non-residential premises, selection of a method for valuation of non-residential premises, process of valuation of construction works
An object construction appraisal: non-residential premises
Assessment address: Moscow
The purpose of the appraisal is to determine the market value of actually completed construction, installation and finishing works in non-residential premises with a total area of 199.4 sq.m.
Assessment Quality Certificate
The assessment has been carried out and the report has been prepared in accordance with the requirements set out in the following documents:
- Federal Law "On Appraisal Activities in the Russian Federation" No. 135-FZ of July 29, 1998, as amended. No. 91-FZ of 05/07/2009;
- "Federal Valuation Standards Mandatory for Application by Subjects of Valuation Activities", FSO No. 1,2,3 approved by Orders of the Ministry of Economic Development of the Russian Federation of July 20, 2007 N 256, of July 20, 2007 N 255, of July 20, 2007 N 254.
The facts stated in the report are correct and correspond to reality. The analyzes, opinions and conclusions contained in the report are those of the assessor themselves and are valid strictly within the limiting conditions and assumptions that are part of this report. The appraiser's remuneration does not depend on the results of the final valuation, as well as on those events that may occur as a result of the use by the customer or third parties of the conclusions and conclusions contained in the report.
Appraisers do not have any real or expected interest in the property being valued, act without prejudice and without prejudice in relation to the parties involved.
The facts presented in the report, on the basis of which the analysis was carried out, assumptions and conclusions were made, were collected with the greatest use of the knowledge and skills of the Appraiser, and are, in his opinion, reliable and do not contain factual errors.
The source data used by the Assessors in the preparation of this report has been obtained from reliable sources and is believed to be reliable, however, where possible, citations are made to the sources of information.
Limiting conditions and assumptions made
The Assessment Quality Certificate, which is part of this report, is subject to the following conditions and assumptions:
- This report is accurate only for the purposes stated herein;
- The Customer and the Contractor do not assume obligations for the confidentiality of settlements. The Contractor does not assume responsibility for the description of the legal status of the object of assessment;
- The Contractor relied on the correctness of the initial information provided by the Customer;
- The valuation of the property was carried out on the basis of an inspection of the object and information provided by the Customer.
- In accordance with the task set by the Customer, the Contractor's duties do not include the assessment of the Customer's property rights to real estate.
- During the assessment, it was assumed that there were no hidden factors affecting the value of the object. The Contractor is not responsible in case of detection of such factors after the assessment.
- Neither the Customer nor the Contractor can use the report (or any part of it) otherwise than as provided for in the text of this report;
- The opinion of the Contractor regarding the value of the appraisal object is valid only on the date of appraisal. It does not accept responsibility for subsequent changes in social, economic, legal and natural conditions that may affect the value of the property being valued;
- The Contractor is not obliged to provide additional advice on this report in connection with the subsequent provision of information that may in any way affect the conclusions made in the report regarding the value of the object;
- The Contractor is not required to appear in court or testify in any other way regarding the report or object of assessment, except on the basis of a separate agreement with the Customer or an official subpoena of the court.
- The appraiser personally inspected the object. The determination of the market value of the actually performed work by the appraiser was carried out according to the volumes recorded during the survey without opening the external finishing coatings.
- Acts on hidden works and project documentation not at the disposal of the appraiser.
The assumptions and limitations described above imply their full and unambiguous understanding by the parties who signed the report. All provisions, results of negotiations and statements not specified in the text of the report are null and void. These assumptions and limitations may not be changed except by the signature of both parties.
Without the written consent of the Appraiser, this report should not be distributed or published, nor used, even in an abridged form, for purposes other than those specified above. The Appraiser does not assume any responsibility for losses that may arise from the customer or the other party as a result of violation and / or ignorance of the formulated limiting conditions.
Evaluation process
Basic concepts and definitions. According to Article 623 of the Civil Code of the Russian Federation, “improvements that can be separated from a thing without harm to it are recognized as separable. Accordingly, inseparable improvements, when they are separated from a thing, worsen its condition, as a result of which it acquires disadvantages. The law does not say what the degree of damage to a thing must be in order for the improvements to be recognized as inseparable. Therefore, one should come to the conclusion that damage can be of any kind, the main thing is that as a result of it, the thing has defects for which the tenant is responsible.
Price (price) is a term denoting the amount of money demanded, offered or paid for a certain product or service. It is a historical fact, that is, it refers to a certain moment in time and place, regardless of whether it was announced openly or remained secret. Depending on the financial opportunities motives or special interests of particular buyers and sellers, the price paid for goods or services may not correspond to the value attributed to these goods or services by other people. However, price is an indicator of the relative value attributed to goods or services by a specific buyer and/or a specific seller under specific circumstances. (MSO. General concepts and principles of assessment. M., 1994).
Value is an economic concept that establishes the relationship between goods and services available for purchase and those who buy and sell them. Cost is not a historical fact, but an estimate of value specific goods and services at a particular point in time, according to the chosen cost definition. economic concept value expresses the market view of the benefit that the owner of this product has or the client who is provided with this service, at the time of valuation. (MSO. General concepts and principles of assessment. M., 1994).
The cost of replacing the object of assessment is the sum of the costs of creating an object similar to the object of assessment, in market prices, existing on the date of the assessment, taking into account the depreciation of the object of assessment. Replacement value is commonly used for insurance purposes as an estimate of the total cost of restoring property. Valuation procedures that use replacement or rebuild costs as the basis for calculating the value of the business for the purpose financial reporting, are deemed appropriate in limited circumstances, as discussed in ESS 4 on Amortized Replacement Costs (ACC). Valuation calculations for insurance purposes are sometimes carried out simultaneously with asset valuations.
replacement cost (reinstatement value) costs that are necessary to replace, current or overhaul the insured item of property in order to bring it to a condition that is practically the same, but not better than that in which it was when it was new (without expanding it). (MR 3, paragraph 3.5.5)
Appraisal is the act or process of determining value. Synonymous with Valuation. (Business Valuation Standard, BVS-I. Terminology). Valuation date (appraisal date) - the date on which the appraiser's opinion on the value is valid. (Business Valuation Standard. BVS-I. Terminology).
Property (property) - legal concept, which covers all interests, rights and benefits associated with the property. Property consists of private property rights, which give the owner the right to interests in what is owned. In order to distinguish real estate as a physical object and ownership of it in a legal sense, the ownership of real estate is called immovable property. Ownership of an interest in objects other than real estate is called movable property. The word property, used without further definition or identification, can refer to both immovable and movable property or a combination of them. (ISO. Concepts/principles, paragraphs 2.3, 2.4).
Property rights (proprietary rights) - the rights associated with the ownership (ownership) of real estate (real estate). Ownership includes the right to use property (property), its sale, lease, donation; and development, agricultural use, mining, alteration of its topography, division, consolidation or renunciation of all these rights. The pooling of property rights is sometimes referred to as a bundle of rights. Property rights are generally subject to public and private restrictions such as easements, rights of way, zoning, building density, and other restrictions that may encumber the property. (MP 1, 3.0).
Types of property - international valuation standards clearly distinguish between the concepts of real estate and real estate. Real estate is material object(thing) and is defined as physical site land, subsoil plots, isolated water bodies and everything that is directly connected with the land, i.e. objects, the movement of which is impossible without disproportionate damage to their purpose, including: forests, perennial plantations, buildings, structures. (ISO, Concepts/principles, paragraph 2.0, 2.1)
Real property is a legal concept relating to all rights, interests and benefits associated with the ownership of real estate. An interest in real estate is usually formalized by an official document, such as a proof of title or a lease. (ISO Concepts/principles, clause 3.2).
Real estate - physical land and all things that are a natural part of it, as well as objects attached to the land by people. (ISO. Concepts/principles, p. 3.1).
Market value is the estimated sum of money that would be an exchange of property on the valuation date between a willing buyer and a willing seller as a result of a commercial transaction after proper marketing, in which each party would act in a knowledgeable, prudent and free manner. Market value is an objective assessment of the established ownership of a particular property at a given date. (ISO 1, clause 3.1).
Market approach - general way determining the value of an object or its own capital, within which one or more methods are used based on a comparison of this enterprise (object) with similar investments (objects) already sold. (Business Valuation Standard, BVS – I, Terminology).
The income approach is a general way of determining the value of an object or its equity, which uses one or more methods based on the recalculation of expected income. (Business Valuation Standard. BVS-I. Terminology).
The cost approach is the approach to valuation that determines the value of an object by determining the current (current) value of an asset minus various elements of depreciation: physical, functional and economic. (Business Valuation Standard. BVS-I. Terminology).
Choice of valuation base
The purpose of this appraisal is to determine the reasonable cost of the costs of the necessary creation of an object similar to the appraised object, in market prices that exist on the date of the appraisal, taking into account the depreciation of the appraised object - the cost of replacing the appraised object. Replacement value - the sum of the costs of creating an object similar to the object of assessment, in market prices that exist on the date of the assessment, taking into account the depreciation of the object of assessment. As the basis of assessment, the expert chose the replacement cost, determined by costly approach. The evaluation procedure includes the following:
- departure to the place for inspection and fixing the volume of work performed;
- collection and analysis of the necessary information and documentation;
- calculation of the cost of costs by compiling budget documentation or estimates for the repair of property;
- drawing up a written report.
Choice of Approaches and Methods of Evaluation
To select assessment approaches, a comparative analysis information about the relevant real estate market with the information necessary to apply one or another approach.
Cost approach - a set of methods for estimating the value of the object of assessment, based on the determination of the costs necessary for the reproduction or replacement of the object of assessment, taking into account depreciation and obsolescence. The costs of reproducing the appraisal object are the costs necessary to create an exact copy of the appraisal object using the materials and technologies used to create the appraisal object. The costs of replacing the object of assessment are the costs necessary to create a similar object using materials and technologies in use at the date of assessment. As already reflected above, it is used in the absence of market information on transaction prices or income from real estate. In this case, when assessing the market value of the repair performed, it is the only possible one.
Comparative Approach - to apply a comparative approach in real estate valuation, it is necessary to have information about the sale of comparable properties. However, in the absence of information on actual transactions, it is possible to use data on the offer of sales of comparable objects-analogues.
Income approach - a set of methods for assessing the value of the object of assessment, based on the determination of expected income from the use of the object of assessment. The income approach includes two main approaches. According to the first, the value of an object is calculated on the basis of the current annual income from its operation, using special coefficients that reflect the relationship that has developed on the market between property values and income levels. In accordance with the second, a forecast is made regarding operating income for a certain period in the future and the likely selling price of the object at the end of this period, and then calculated and summarized current values all future income, using special coefficient, reflecting the risk that accompanies investment in this object.
Description of the object of assessment
The object of assessment is a complex of construction, installation and finishing works, as well as materials and equipment spent to perform inseparable improvements in non-residential premises. The room with a total area of 199.4 sq.m., located on the first floor of a residential building, consists of rooms 1,2,3,4,5,6,7,8,9 of room XXXIII.
Appraiser's opinion
The purpose of the appraisal is to determine the market value of the actually performed work in order to inform the Customer. In accordance with international and Russian standards the determination of the market value of the appraisal object should be obtained by coordinating the values of the value determined as a result of using various methods of appraisal, namely: cost, comparative and income approaches. The coordination of the results obtained by various methods, as a rule, is carried out by introducing for each of them an appropriate weighting coefficient that reflects the degree of its reliability. As follows from the conclusions made by the Appraiser during the preparation of this report, one of the three valuation approaches was used - costly. Based on the foregoing, and guided by his experience and professional knowledge, the Appraiser considered it possible to give the following specific weight to the value obtained by the cost approach - 1.0 (100%).
Thus, the market value of the object of appraisal - actually made inseparable improvements to the premises, as of the appraisal date, including VAT and rounding, is: 2,358,000 (Two million three hundred and fifty eight thousand) rubles.
Estimating the real value of shares in construction companies is one of the most difficult tasks for an investor. This has always been true as they were never traded at their true price. Before the crisis, they were placed at an extremely high cost, at present they are quoted significantly below the fundamental valuation. This article is built on the findings after researching the specifics of several large construction companies. This analysis made it possible to build an adequate algorithm for estimating the value of their shares.
Why are standard methods powerless with respect to SC?
developers is not amenable to standard approaches to valuation. For example, such an exponent as revenue for the SC has no content, since without revaluation of property, this index reflects only how actively sales of real estate from assets were carried out in a certain period of time. If this indicator for company X is zero, then this means that in reporting period engaged exclusively in construction, selling nothing in set time. On the same basis, it is impossible to forecast the value of shares in the future using traditional ratios (P/BV, P/E, P/S, and others).to predict the value of shares of the UK
Based on the foregoing, in relation to construction companies, the alternative is to make a forecast book value specific UK in the future, that is, it is necessary to assess the market value in the future of the projects that it currently has. Of course, the task is more voluminous than standard methods. So, the following documents should be sources of information on the UK: standard financial statements; reports of the UK quarterly and annual; financial statements according to international standards with comments; appraiser's report; information that the UK presents to investors; additional sources from open access: articles, news feeds, forums and more. Arising problems in information processing: As a rule, the standard financial statements of the UK are not consolidated, that is, each construction object is identical to a new legal entity. International Standards Reporting also creates an obstacle: civil construction projects (they prevail in the portfolio of the UK) are included in the item "Reserves" and are valued at real cost, and not at fair. An appraiser's report published by some companies contains full list objects with basic characteristics and estimates for each of them. But, firstly, the investor needs the value of the stock in the future, that is, the price of the IC portfolio in the future. Secondly, the parameters by which the cost of objects is displayed can be different. For the investor, first of all, it is important to predict the change in the value of real estate and building object. Returning to the crisis, we remember that the same experts either did not change prices in their estimates for a number of years (despite the changing market trends), or seriously underestimated them during the year. Therefore, the reports of such specialists do not deserve trust, and their reports can only be taken as data on the object and its main parameters (type and class of real estate, terms of work, location, share of the UK in the project and area). Algorithm for predicting the value of shares of the UK
Based on the foregoing, in order to be able to assess the value of the construction company's shares in the future, it is necessary to re-evaluate the entire volume of real estate of the UK and express it in the company's balance sheet. To do this, you need to perform the following actions: 1. The entire available information about the objects of the UK, mandatory for evaluation. 2. First, all objects are evaluated according to their belonging to specific real estate segments. 3. The total value of the developer's portfolio is calculated. 4. We predict the financial position of the company in the future. 5. Forms are drawn up: profit and loss statements, as well as a balance sheet. 6. The predicted yield and the ownership rate of the securities are calculated. 7. We calculate the generalized profitability from 1 share. Now let's look at some aspects in detail. Assessment of residential sector objects Distinctive characteristics of this segment is the difference in the time of project implementation and the time of actual sales. You also need to track actual sales according to reports: for a month, for six months, for a year. Another distinctive point is sales by stages, that is, the difference between the cost at the stage of construction of the object and the market value of the erected object. It is explained both by the developer and by the shareholder. From the position of the first, this is the attraction of funds for construction. For the shareholder, the discount is fraught with risks. As the property is built, the discount and risks decrease. Ultimately, the object comes down to the difference between the income of the UK from the sale of apartments and construction costs. Valuation of objects of the commercial sector Distinctive characteristics of this segment are: total area object. Capitalization rate - the ratio of real estate rent and its value (taking into account market conditions). Commercial real estate implies two implementation options: sale and. In both cases, except for a discount similar to residential real estate, a discount is implied for the sale of all areas at once, or parts of areas in large volumes. If the premises are rented out, the funds from it are deducted. The volume of the developer's portfolio is the sum of completed and unfinished facilities. Assessment of objects at the design stage and land When calculating these parameters, you need to understand: Both agricultural land and land for the construction of structures are calculated by the comparative method. The sale of land in suburban settlements is calculated in terms of monetary profit. If the implementation of the project is not started within the next few years or specific documentation on the object is not received, then it is calculated as land. Various IC business models Separate SK in parallel to the main activity conduct additional (often related). For example, a construction company produces building materials. In this case, the calculation can be different: 1. Additional directions are calculated separately, and as a result, all components are taken into account. 2. Indicators from all types of activities are taken into account in one statement of losses and profits. Generalized assessment of the developer's portfolio At this stage, the sum the following indicators: Price of unfinished objects. The price of finished objects. Construction costs. Income from sales of residential areas. Income from sales of commercial space. Rental income. At the forecasting point, the first two indicators reflect the balance capital in the future. in monetary terms reflect income minus expenses. Part of it will remain undistributed, and also reflect the balance sheet capital of the UK in the future. The other part reflects the funds necessary for the company to carry out its activities. Adjustments based on the actual reporting of the UK At this stage, we directly proceed to the compilation of a forecast of the balance capital of the UK in the future, for this we compare it with the current balance capital. Only those objects that exist at the beginning of the term are subject to revaluation. The implementation of new objects is not fixed. Next, the amount of funding for the implementation of the activities of the UK is calculated. Their implementation is possible through additional issue shares, sale of objects or debt management. In addition, it is necessary to take into account the obligations of the UK for taxes, including from sales. And finally, the calculation of the yield potential The final parameter of the attractiveness of the IC for the investor consists of 2 parts: the holding rate and the potential profitability. The holding rate reflects long-term returns. Here each of the types of real estate is taken into account at its rate, which are then summed up by their proportions in the developer's portfolio. Don't forget about discount adjustment. Potential return reflects the return in the short term. Here we compare capitalization per forecast point and capitalization according to the forecast. Do not forget about the rent of the UK and the rate of return in the average value. Don't forget about discount adjustment. The correct assessment of the profitability of the SC is a rather difficult task. It is precisely with this that the inadequate behavior of individual investors who are engaged in securities these companies. But, the proposed evaluation algorithm is relevant for calculating the real state of affairs in the UK - to reduce the risks of an investor who wants to invest his own money in their securities.Be aware of everyone important events United Traders - subscribe to our
