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The aim of this paper is to present and to propose completely different valuating approach i.e. to introduce, a new company valuation method. As generally known there are numerous methods of company’s valuation such as: book value method, business value method, valuation by indicators, etc. And finally the most commonly used Discounted Cash Flow Method (DCF) By applying abovementioned method to value a company i.e. business, the future business plans based upon historical data, expressing expectations in the future are taken into the count. And then by discount rate those future data being bring back to present. Firstly, the future cannot be predicted preciously. Secondly, if the business plan is leaned on the past business, which was good, it does not mean it will be as good in the future. Next problem is concerning applied discount rate. There are many methods to calculate one, but each one is optional and arbitrary, what means it is up to analyst or valuator to choose one. Residual value problem occurs now. Putting this value into the calculation the whole picture can be heavily distorted, especially if the sum of net incomes is not very high. Proposed Compounded Cash Flow or CCF method offers a different approach to valuation. Instead of bringing back the future promises to the present by arbitrary chosen discount rate, this method proposes to take company's complete financial reports and by taking stated figures bringing the certain and reliable past to the present by compounding. Knowing the past (inflation rate, taxes, banking rates, demand, costs, accounting policies, etc.) data from the accounting books can be corrected and adjusted properly. This way more reliable and accurate data are available to be evaluated. The CCF method is theoretically well founded, applicable in practice and it serves for valuating any business. By this method the company's value can be estimated (valuated) at the certain part of time and compared to the current stock price on the stock market, and the additional advantage of this method is risk elimination of misevaluating for the certain extend. Following previously disclosed the paper points out the necessity of evaluating, not only physical assets, but also human capital, i.e., the totality of knowledge and skills of employees in company. The paper points to the fact that the use of CCF method takes into account the human capital as an important component significantly reduced chronic devastation of the eastern Croatian economy. |
