“Comment, question or quotation of the day”

17-07-2018 : Quote of the day

“Minimising a rate means maximising value, and vice versa. “
Pierre Vernimmen

16-07-2018 : Solution to the problem of last Friday

First recall the problem: You need to value a company in the emerging world whose financial statements do not clearly reflect the reality of things since at least 50% of sales are not declared.   Which valuation method would you use in this case?   The parameters to take into account: - the land and buildings are not valued at market value in the balance sheets but at acquisition price (rather low), - the net results are insignificant due to tax optimization (undeclared sales), - companies are undercapitalized with huge debtors (10 times equity), - inventories seem to properly valued,   Answer: This company should be valued using the sum-of-the-parts method adding the assets valued on the basis of their market value and subtracting the debts. Do not forget to obtain from the seller a guarantee against hidden debts (for example by retaining a part of the price during the period during which the tax administration can come to correct you on the sales made and not declared). Indeed, any other method seems ineffective because of the under declaration of sales which removes all the relevance of the elements of the profit and loss account and the cash flow statement. Hace a nice day.  


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The Vernimmen.com Letter

Number 114 of June 2018

News : New equity investors on the LBO market

Statistics : The continuing rise of intangible assets

Research : Does treating employees well create value?

Q&A : How do you manage the different entry prices in the successive fundraisings of a start-up?