by Apra Law

Corporate restructuring is defined as the review and restructuring of part or all of an enterprise to make a corporation more compact, adaptable, flexible and efficient. The scope of consideration for corporate restructuring is based on the following criteria: objectives, functions, tasks; corporate organization and processes for performing the defined task & function. 

What often have to be addressed in corporate restructuring 

– Basic corporate restructuring: Survey and evaluate the current structure model (reasonable or unreasonable); Establish a new corporate structure model; Determine the responsibilities of each department, job description for each individual; Develop an overall management system (rules, regulations, procedures, forms) and implement training; Operating and maintaining the operation of the new management system…

Intensive corporate restructuring: Including the work of basic corporate restructuring, and: Re-establishing intensive administrative and personnel management policies; Re-establish policies for management of marketing and business strategies; Re-establish supply management policies; Re-establish production and technical management; Re-establish accounting and financial management policies; Re-establish other governance policies.

Methods for determining business value

Balance sheet-based 

Based on the balance sheet, the corporate value is the value of the portion of the assets reported on the balance sheet at the time we want to determine the corporate value. The advantage of this method is simplicity and ease of understanding. However, there is also a big disadvantage that most of the value of the assets reported on the balance sheet is historical value, so the usefulness for those who use information about corporate value will be very limited. Therefore, this method is only theoretical, almost not used in practice.

Based on the results of inventory and revaluation of assets

This method is based on the results of the inventory and revaluation of the assets of the corporation according to the market value at the time of valuation. This method requires corporate valuation experts to directly inventory and reassess the value of each asset of the corporation. This method provides fairly reliable information about the market value of the total assets of the corporation at the time of valuation. However, this information represents a static value – the value of liquidating the corporation. Meanwhile, the usual purpose of corporate valuation is to make future business decisions, that is, to consider the corporation in a state of continuous operation, rather than when the enterprise is shut down. Therefore, in addition to providing information in cases of dissolution or bankruptcy of enterprises, valuing enterprises by this method has very little practical value.

Cash flow discounting 

This method values the business as the present value of the future free cash flow of the enterprise. This free cash flow is cash flow for both owners and creditors. This method has advantages over the balance sheet-based method, and the method of relying on the results of inventory and revaluation of assets is to determine the value of the enterprise in a state of continuous operation, not in a state of liquidation. The disadvantage of this method is that the way it is conducted is quite complicated. The crux of this approach is to determine the future free cash flow of the business and determine the average capital dominance to discount that cash flow to present value.

Unusual method of discounting profit flows

The owners of each business require a certain rate of return on the amount of capital they invest in the business, which is the cost of equity. This rate of return is called the normal rate of return. With the usual rate of return, each business has a regular profit which is the usual Rate of Return multiplied by the Equity Value. However, the actual profit of the business may be equal to or different from this usual profit.

Valuation on the basis of market value comparison

This method needs to be market-based, which is also the assessment of short-term and long-term prospects for the development and profitability of similar businesses. From this, the analyst can assume that the valuation of such businesses is also applicable to the business in need of valuation.

This method is quite difficult in selecting similar businesses. Furthermore, explaining the price coefficient differences between businesses as well as applying the price coefficients of different businesses to the business in need of valuation requires a deep understanding of the factors that influence those price coefficients. However, this method is especially useful in valuing businesses not listed on the stock market with a database mainly of corporate financial statements and information on the stock market.

Valuing a business or determining its value is a difficult and uncertain matter. All the methods used to value the business cannot fully solve this problem, but can only estimate the relative value of the business.

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