In the field of evaluating the value of what a company is worth, whether for purchasing processes or sale of equity interests, or closing of activities, there are 2 types of values: o accounting and economic.
The book value, known based on the balance sheet calculated according to standard rules accounting, it is only useful in cases of closing an activity. This limitation comes from the fact that accounting deals with records of past facts and not the future potential of a business.
So, in the case of the closure of the company’s activities, the special balance with identification of the market value (sale) of all assets, such as accounts receivable, inventories, building installations, machines and brands. Suppose you calculate the amount of R$15 million.
Next, the value of all obligations to be paid, such as suppliers, salaries, taxes and loans, which in the example, is R$ 9 million. So, the equity, the amount that fits to the partners, it is R$ 6 million (R$ 15 million less R$ 9 million). This is called the value of sale off. By selling all the assets and after paying the obligations, there are BRL 6 million left for the partners.
Economic value is useful for most cases in the context where the company will continue operating in the future. The fundamental principle is the economic concept of “margin”, which briefly indicates that economic decisions must be made considering costs and future benefits and not past ones.
Thus, the economic value of an enterprise is a function of the expected future cash flow it will generate in the future, over time, and starting now, on the date of assessment.
It is common sense that a residential or commercial lot in an area has economic value. Urban area of a city, as this asset can generate value to its owner through resale or lease. But an asset that cannot generate cash in the foreseeable future has no economic value, like, for example, an iron ore deposit that is located at a great depth
making its extraction cost so high that it far exceeds the selling price, in the current and long-term.
By considering the economic value as a function of the value of the future cash flow, the method incorporates and attributes value to all assets, tangible and intangible (brand, point, network of customers, technology, etc.) that can generate that future result.
In defining the economic value of a company, based on the cash flow method discounted, a technical appraisal report is prepared that indicates the fair value, that is, the most likely to be obtained in a negotiation, where buyer and seller have the same information.
However, the final value effectively negotiated and agreed between the parties may differ from that pointed out in the report, as emotional and even competence factors come into play business. Thus, the company’s valuation may indicate a fair value of BRL 20 million, and the parties negotiations may reach, for example, R$18 million or R$22 million.
