Avaliação Econômica de Empresas Negócios e Projetos (NBR 14653-4) EN - SETAPE

Economic valuations of companies, businesses and projects (NBR 14653-4)

By conducting Economic Valuations of companies, businesses and projects with Setape, you are ensuring that your company’s valuation will be done correctly and accurately.

Why do an economic valuation?

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There are numerous situations in which an economic valuation is necessary. Among the most common, we can mention:

  • Buying and selling companies: determining the price at which an entity is sold or purchased;
  • Scissions: determination of the value of the parts of an entity that needs to be split up for strategic, market, regulatory, corporate reasons, etc.
  • Exit of partner/Sale of participation: determination of the value of the withdrawing party;
  • Entry of partner/Purchase of participation: determination of the entry price of the new partner and of its shareholding;
  • Warranty: determination of the value of shares / quotas given as guarantee in credit operations.

These valuations reflect the value of the participation of a specific partner or groups of partners, in a specific company, at a specific market moment. Unlike fair value valuations, which reflect the market view, economic valuations reflect the bias of the buyer or seller, as the case may be.

What is the normative basis for valuation at fair value?

As most economic appraisal reports are used as beacons for negotiation between parties, there is no specific standard that has to be observed in their preparation.

The best practice guide in Brazil is NBR 14653-4 Asset valuation Part 4: Enterprises, published by ABNT- Brazilian Association of Technical Standards

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How is an economic valuation developed?

There are three different approaches to valuating a company. Below is a brief description of these methodologies.

  • Cost Approach: Values the company through its shareholders’ equity adjusted to market prices.

As the value of intangible assets is not reflected in the equity of most companies, this methodology tends to underestimate them and is not used in practice.

  • Market Approach: Compares, indirectly, the value of companies similar to the evaluated company. It is known as the “multiples approach”.

First, a survey is made of a group of similar companies (same sectors, same markets) whose value is known, either because they are traded on the stock exchange or because they were recently traded for a publicly known value. Then, a statistical analysis is made, comparing the value of each of these with their respective financial indicators (eg: value ¸ net revenue, value ¸ EBITDA, value ¸ net profit, etc.) determining the typical multiples of the reference group. Finally, these multiples are multiplied by the indicators of the valuated company, thus reaching their value.

  • Revenue (or Income) Approach: Valuate the company at the present (discounted) value of its expected future cash flow.

According to this methodology, the Equity Value corresponds to the current value of its projected free operating cash flow, discounted at rates that adequately reflect the actual remuneration expected by its capital providers, due to the risk associated with the industry and the company valuated.

Projected free operating cash flow is the net resources generated by the company’s operations for distribution to its capital providers (shareholders, debenture holders, long-term loan lenders and other components of the company’s capital structure).

The application of the method requires the determination of three main components:

  • the Projected Free Operating Cash Flow, determined from a simulation model applicable to the company. This model considers the variables of an economic and financial nature that have the greatest impact on the formation of the company’s future cash flows;
  • the Residual Value, which is the equity value at the end of the period under review;
  • the Discount Rate, used to calculate the present value of future cash flow and residual value. This fee is usually determined by the internationally accepted method of Weighted Average Cost of Capital (WACC) which calculates, in proportion to the participation in the company’s capital structure, the opportunity cost of shareholders and the cost of capital of third parties.

Technical Standards

Setape’s valuations are always carried out with strict observance of all guidelines set by the ABNT Standards – Brazilian Association of Technical Standards and Ibape Nacional – Brazilian Institute of Engineering Valuations and Expertise.

Why hire Setape?

Complete Advisory

The only company that performs all services of valuation of movable and immovable property, urban and rural, valuation of companies, and has support for asset control (fixed assets).

Proven Experience

With 45 years of activities and more than 80,000 services performed, it is the company with the most experience in evaluating the fixed assets market and in economic evaluations.

Qualified Team

It has its own team with more than a hundred professionals from all specialties.

Satisfied Customers

Quality of services proven by its customers

International Coverage

It belongs to the VRG – Valuation Research Group of international valuation companies with service coverage on all continents

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