Valuation of assets for management decisions purposes. Case of manufacturing holding in food industry

Abstract

The subject of this paper is business analysis and valuation. The goal of this work is to value three companies, that are parts of a holding and to compare used valuation methods. The companies face serious financial problems and without major strategic changes may go bankrupt. The author focuses on two valuation methods – discounted cash flows (DCF) and liquidation value (LV). The reasons for choosing the mentioned methods are two: the weak financial standing of the companies and the companies’ future restructuring plans. In case of companies with financial problems, liquidation value can be used to calculate the potential cash that could be generated after selling a company’s assets in bankruptcy process. On the other hand, a company that tries to prevent its assets from liquidation may pursue some restructuring processes. If this is the case, then the companies’ owners need to know the values of their companies in order to make some strategic decisions whether to sell or integrate businesses, which businesses are the least and the most profitable. DCF is frequently used in the restructuring processes as valuation tool that estimates the market values of the analyzed company. The following work consists of two main parts. The first one is theoretical introduction to valuation. The second part presents a case study in which the writer shows the basics of business valuation and implementation of some theoretical valuation concepts presented in the first part. The valuation theory part includes value and valuation definitions, describes different valuation approaches and finally describes the methods used by the analyst in the second section. In the case study section, the author analyzes three businesses and apprises them. The case consists of three main analyses. The first one is the strategic analysis, where the companies’ overall businesses and the industry are described. The second is a part of financial analysis, which is a ratio analysis, where the author analyzes the companies’ profitability, operating, financial and investing management. The last part includes the prospective analysis. In this part the author calculates the businesses’ values and interprets the results.