Model of valuation on the example of the metallurgical enterprise

Abstract

The management of organizations essentially depends on the choice of criteria for the functioning and development. At the initial stage of the transition to a market economy, the main criterion for many Russian organizations was cash flow. The following criterion is the net income (financial result), provided sufficient cash flow. The disadvantage of this criterion is its short duration. This paper highlights the value creation approach to management. This approach is widely used in managing Western organizations, but it is pretty new for Russia and requires adaptation in Russian organizations. Purpose of the study. The study’s primary purpose is to develop models and methods to improve the efficiency of organizations in the real sector. This paper discusses the development of a model for assessing the value of an organization by the income method using discounted cash flows. The issue of creation/destruction (increase or decrease) of value with an increase in revenue is being considered. For many Russian organizations, business growth is accompanied by a decrease in value. A criterion for creating value has been developed, non-observance of which will lead to the destruction (increase) of value with an increase in revenue. Materials and methods. A two-period model for evaluating the cost in an analytical form was used. The va­lue model is designed for “mature” organizations characterized by stable development parameters: operational profitability and capital-to-output ratio. Results. One of the largest metallurgical organizations in Russia is considered as the object of research. Collected and processed initial data on the financial and economic condition of this organization. The valuation model was applied to one of the metallurgical companies in Russia. The accuracy of the calculation results for the valuation was 6% in relation to the actual market price, which can be considered a satisfactory result. Conclusion. This approach simplifies the assessment of the company’s value and develops measures to increase (rather than reduce) its value. An increase in the revenue of an unattractive investment company leads to its value destruction (decrease). Instead of a positive result, stakeholders get a negative one, given the seemingly favorable dynamics of the organization’s development. The proposed model is typical and can be used to analyze the development of many “mature” organizations.