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Business valuation
14
min read
Cost of capital in business valuation - calculation and application
Determining the cost of capital is one of the regular tasks of auditors when carrying out business valuations. They are needed to determine the current value of a company, but also to allocate purchase prices to individual assets, carry out impairment tests or value brands. In this article, we explain how the cost of capital is made up, how to determine the weighted average cost of capital (WACC), which use cases regularly occur in practice and which errors should be avoided when determining the cost of capital.
Peter Schmitz
July 15, 2024
Business valuation
8
min read
The weighted average cost of capital (WACC) in the IFRS impairment test according to IAS 36
The weighted average cost of capital (WACC) is the most commonly used discount rate in the IFRS impairment test. This article explains the special features to be considered when determining the WACC and the difference between the WACC in business valuation.
Peter Schmitz
July 14, 2024
Taxes
3
min read
Special features of the reconciliation of company value in IDW S13
A key feature of company valuation in family and inheritance law is that in most cases it involves a property dispute between natural persons. As a result, in addition to company shares, other assets of natural persons must regularly be taken into account.
Peter Schmitz
July 13, 2024
Business valuation
8
min read
The discount rate in the IFRS impairment test (IAS 36)
The impairment test for assets under IFRS is governed by IAS 36. The aim is to ensure that the assets of a company are not recognized in the balance sheet at a value higher than their recoverable amount. This article explains why goodwill is often the focus of the impairment test and why a discount rate is almost always required.
Peter Schmitz
July 11, 2024
Business valuation
5
min read
Cost of capital databases – an overview for auditors
Auditors who want to produce a reliable business valuation, including the cost of capital and beta factors, need a large amount of valid data. To obtain this data, it is useful to access special databases. There is a wide range of databases available, from the USA to Europe, and from those that are free of charge to those that are not.
Peter Schmitz
July 11, 2024
Business valuation
4
min read
SME valuation: Simplified methods vs. enterprise value models
In valuation practice, multiple valuations are often used for SMEs, particularly with Sales, EBITDA, EBIT and EBIT multiples. But can they replace the common DCF and Income approaches? The IDW says so:
Peter Schmitz
Business valuation
6
min read
BGH ruling on debt liabilities in the capitalized earnings method
According to the Federal Court of Justice, external liabilities are to be taken into account in the capitalized earnings value method by deducting the interest on borrowed capital attributable to them.
Peter Schmitz
Business valuation
6
min read
Impairment test according to IFRS IAS 36 and German-GAAP: Basics and pitfalls
Find out how an impairment test is carried out, what the IFRS requirements are and which errors can be avoided.
Peter Schmitz
May 29, 2023
Business valuation
5
min read
GmbH loans to shareholders: returns, liquidity and tax benefits
Interesting facts at a glance on ►yield, ►liquidity and ►tax advantages of loans from a GmbH to its shareholders.
Peter Schmitz
May 29, 2023
Business valuation
min read
Is total beta an alternative in SME valuation?
The total beta of a company is an extended version of the beta coefficient and takes into account not only the systematic risk of the company but also the financial risk. Is this a useful key figure for SMEs?
Peter Schmitz
Business valuation
7
min read
The arm's length principle in tax law: significance, application and recommendations for action
Peter Schmitz
May 27, 2023
Business valuation
5
min read
Size-Premium in the business valuation of SMEs
We explain the background, controversies and effects of risk premiums in the valuation of SMEs.
Peter Schmitz
March 5, 2020
Business valuation
4
min read
Sustainable growth rate in business valuation
In the world of business valuation, the sustainable growth rate plays a crucial role. This article provides valuable insights into the factors that influence this rate and explains how valuation experts can determine it.
Peter Schmitz
Business valuation
8
min read
Gearing in the multiples valuation
Multiples are often used in business valuations to check plausibility, especially in a capital market-oriented environment, where they often serve as the main valuation method. However, not everyone realizes that gearing also plays a role in multiples valuation, similar to the determination of beta factors.
Peter Schmitz
Business valuation
6
min read
Landmark judgments: Market interest rates for group loans
The price comparison method is the method of choice for market interest rates on group loans, according to two relevant BFH rulings.
Peter Schmitz
Business valuation
4
min read
Publicly traded peer group companies for business valuation purposes
Find out how you can use the beta factors based on a listed peer group for business valuation.
Peter Schmitz
Business valuation
9
min read
Practical tips for the valuation of SMEs
The valuation of small and medium-sized enterprises (SMEs) presents experts with a complex problem. Can multiple valuations replace the DCF and Income approach? In this article, we shed light on the challenges and possible solutions when valuing SMEs.
Peter Schmitz
Business valuation
6
min read
Cash and cash equivalents required for business valuation
Find out why the assessment of liquidity required for operations is often misunderstood in business valuation.
Peter Schmitz
November 15, 2019
Business valuation
8
min read
Deferred taxes in business valuation
The topic of "deferred taxes" is rarely one of the typical finance professional's favorite topics in day-to-day accounting practice. It is therefore not surprising that the issue is ignored by valuers in the course of business valuations. When it is nevertheless worth taking a look at the topic.
Peter Schmitz
September 6, 2019
Business valuation
5
min read
IFRS 16 in business valuation
IFRS 16 sets out the requirements for the recognition, measurement, presentation and disclosure of leases in the annual financial statements of companies that prepare their accounts in accordance with International Financial Reporting Standards (IFRS).
Peter Schmitz
Business valuation
7
min read
Insecure vs. secure tax shield
Errors related to the beta factors can be avoided by paying attention to whether the tax shield is safe or unsafe.
Peter Schmitz
Taxes
6
min read
Consistent application of the multiples method
Consistent application of the multiples method is crucial for meaningful results. This article highlights the most important aspects of methodology and parameters.
Peter Schmitz
Business valuation
8
min read
Special features in the determination of an objectified business value in IDW Standard 13
Find out about the key differences in business valuation for family and inheritance law matters in accordance with IDW Standard 13.
Peter Schmitz
Business valuation
9
min read
The tax shield in business valuation
In an ideal world, the capital structure plays no role in business valuation, at least if you follow the Modigliani-Miller theorem, which was developed in 1958 by economists Franco Modigliani and Merton Miller.
Peter Schmitz
Business valuation
6
min read
Raw beta vs. adjusted beta: Choosing the right beta factors in the CAPM
In the context of the Capital Asset Pricing Model (CAPM), beta represents the risk measure for systematic risk.
Peter Schmitz
March 1, 2020
Taxes
3
min read
Shareholder loans: Tips for correct interest calculation
In many companies, shareholder loans play an important role in raising capital. With such loans, shareholders lend money to the company to bridge financial bottlenecks or finance investments.
Peter Schmitz
May 29, 2023
Taxes
4
min read
IDW S1: Present value equivalent uniform riskfree base rate
Against the backdrop of the persistently low interest rate environment, the IDW's Technical Committee for Business Valuation
Peter Schmitz
August 28, 2020
Taxes
3
min read
Risks in the valuation of employee shareholdings
Start-ups are generally subject to revaluation more often than conventional companies. Every injection of fresh equity as part of a capital increase leads to an implicit new valuation of the company.
Peter Schmitz
February 8, 2020
Business valuation
6
min read
The perpetual annuity in business valuation
The perpetual annuity is based on assumptions of constant growth and a constant discount rate and is used in business valuation in both the Income approach and the DCF (discounted cash flow) method.
Peter Schmitz
Business valuation
6
min read
In-depth basics of the multiples procedure
On the stock market, valuation methods based on multiples have always been among the most frequently used methods in business valuation. Particularly in the English-speaking world,
Peter Schmitz
Taxes
4
min read
Perpetuity: Investments and depreciation
The cash flow of the "perpetual annuity" is considered an extremely value-sensitive parameter in the DCF valuation. Among other things, it is determined by the level of long-term investments.
Peter Schmitz
December 3, 2019
Taxes
5
min read
BGH ruling: Guideline for the valuation of a freelance practice
The valuation of freelance practices such as medical practices, architectural firms or law firms remains insufficiently defined in common standards such as IDW S1 or IFRS.
Peter Schmitz
September 25, 2020
Taxes
4
min read
IDW S1: Requirements for rounding the riskfree base rate
The determination of the capitalization rate on the basis of the weighted average cost of capital (WACC) is a central requirement of the IDW. This requires, among other things, the determination of the riskfree base rate for a (quasi-)risk-free capital market investment.
Peter Schmitz
January 15, 2020
Taxes
6
min read
IDW S13 on the valuation of compensation claims in property law disputes
In 2015, the Technical Committee for Business Valuation and Business Administration (FAUB) adopted the draft of the IDW Standard:
Peter Schmitz
November 3, 2020
Taxes
5
min read
Risk-free interest rate in business valuation
The risk-free interest rate corresponds to the return on a capital investment that is not subject to default risk. In addition to the default risk, the term and the currency are further characteristics that determine the level of this so-called riskfree base rate.
Peter Schmitz
May 8, 2020
Cost of Capital
4
min read
Debt beta in business valuation
Debt beta is a measure of the sensitivity of equity to changes in debt financing and is derived from the ratio of the credit spread to the equity risk premium. It serves as an indicator of systematic risk as defined by the Capital Asset Pricing Model (CAPM).
Peter Schmitz
March 12, 2020
Business valuation
5
min read
IDW Valuation Guideline 1/2023: Consideration of gearing in the valuation of companies
Determining an objectified business valuation in accordance with IDW S1 poses challenges for business valuers
Peter Schmitz
Taxes
9
min read
Expert knowledge Discount rate
In the context of a business valuation using the DCF method or the discounted earnings method, the discount rate is used to assign a present value to future income or cash flows.
Peter Schmitz
Cost of Capital
8
min read
Expertise on the beta factors
The beta factor is defined as a key performance indicator in finance and capital market theory. It assesses the systematic risk for the risk taker in a financial investment.
Peter Schmitz
April 16, 2019
Taxes
6
min read
Determining market interest rates using the arm's length method
Market interest rates are an important aspect in determining financing terms between affiliated companies. To ensure that international transactions are carried out on fair terms and in accordance with tax law,
Peter Schmitz
May 27, 2023
Taxes
7
min read
Typification of taxation in business valuation
The taxation of business income and shareholder income in the objective business valuation is complex. Taxes at company and shareholder level must always be taken into account.
Peter Schmitz
December 15, 2020
Business valuation
6
min read
Taxes in the objectified business valuation
Taxation in business valuation is complex. It depends on the reason for the valuation, the legal form, the tax characteristics of the property (e.g. losses) and valuation method decisions such as the tax shield effect.
Peter Schmitz
February 10, 2020
4 min read
Federal Court of Justice
DCF processes
Income value method
Beta Factor Expertise
The beta factor is defined as a key figure in finance and capital market theory. It assesses the systematic risk for the risk bearer when investing or investing money.
Peter Schmitz
April 16, 2019
2 min read
Diskontierungszinssatz
Evaluation parameters
Peer Group
CAPM
Risk Premiums
Beta Factors
Expert knowledge discount rate
Discounting interest rate and cost of capital: Definition, calculation, IDW requirements
Peter Schmitz
Assessment practice
7 min read
Practical knowledge of company valuation
The company valuation determines the value of a company or its shares from the owners' point of view. The theoretical basis is described in detail in specialist literature. This article focuses on practical application issues.
Peter Schmitz
Evaluation parameters
Beta Factors
2 min read
Debt beta in company valuation
Debt beta is the result of the ratio of credit spread and market risk premium. If it is taken into account, the company value usually increases.
Peter Schmitz
March 12, 2020
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