Importance The concept of business value management is very popular; however, its practical implementation causes difficulties. Objectives The available studies show that the main problem is to decompose a company's cost parameter at the operation level. Methods The article provides a comparative analysis of the existing methods of business valuation in terms of their applicability in the system of company management. I consider a company's value management in conjunction with modern approaches to organizational structure design based on the "internal market" model. This approach encourages entrepreneurial behavior within an organization and helps each business unit to understand its role in enhancing the company value. I offer tools to assess the contribution to the company's value of not only business units, but also of all corporate subsidiaries. I have formulated proposals to create a social responsibility system within a company to ensure proper behavior of the internal market participants. I draw attention to the errors, which are often identified in assessing the value under income approach and provide recommendations to prevent them. The practical significance of the recommendations includes the possibility of their use in working out an organizational design, estimating efficiency of business units, and elaborating measures to increase the value of business. Results The economic profit model is to the maximum extent applicable to business valuation management. It is possible to calculate the economic profit on the basis of transfer prices, which depend on the role of business units in the domestic market. In this case the annualized capital value should be a basis for economic profit calculations. Conclusions and Relevance I demonstrate that when calculating the required rate of return under a cumulative method, it is necessary to take into account an average risk premium in addition to the risk-free rate, and for the later periods of a company's life cycle the rate of return should be lower.
Keywords: business valuation, management, economic profit, transfer price, discount rate, IRR, equity, CAPM, accrual basis, internal market
References:
Valdaitsev S.V. Otsenka biznesa: uchebnik [Business valuation: a manual]. Moscow, TK Velbi, Prospekt Publ., 2008, 576 p.
Vilenskii P.L., Livshits V.N., Smolyak S.A. Otsenka effektivnosti investitsionnykh proektov. Teoriya i praktika [Investment project performance evaluation. Theory and practice]. Moscow, Delo Publ., 2002, 888 p.
Garrison R.H., Noreen E.W., Brewer P.C. Upravlencheskii uchet [Managerial Accounting]. St. Petersburg, Piter Publ., 2010, 592 p.
Gryaznova A.G., Fedotova M.A., Eskindarov M.A., Tazikhina T.V., Ivanova E.N., Shcherbakova O.N. Otsenka stoimosti predpriyatiya (biznesa) [Evaluation of the value of an enterprise (business)]. Moscow, Interreklama Publ., 2003, 544 p.
Damodaran A. Investitsionnaya otsenka. Instrumenty i tekhnika otsenki lyubykh aktivov [Investment Valuation. Tools and Techniques for Determining the Value of Any Asset]. Moscow, Al'pina Biznes Buks Publ., 2004, 1339 p.
Ivashkovskaya I. Zhiznennyi tsikl organizatsii: vzglyad finansista [The life cycle of an organization: the financier’s view]. Upravlenie kompaniei – Company management, 2006, no. 11, pp. 60–67.
Karev V.P., Karev D.V.Otsenka biznesa dokhodnym podkhodom – konstatatsiya fakta ili prognoznoe planirovanie? [Business valuation under income approach: a statement of fact or predictive planning?]. Voprosy otsenki– Valuation issues, 2005, no. 1, pp. 15–26.
Copeland T., Koller T., Murrin J. Stoimost' kompanii: otsenka i upravlenie [Valuation: Measuring and Managing the Value of Companies]. Moscow, Olimp-Biznes Publ., 2005, 576 p.
Mintsberg G. Struktura v kulake: sozdanie effektivnoi organizatsii [A structure in the fist: setting up an efficient organization]. St. Petersburg, Piter Publ., 2011, 512 p.
Polozhenie o vnutriproizvodstvennom khozyaistvennom raschete na promyshlennykh predpriyatiyakh v usloviyakh samofinansirovaniya i samoupravleniya [Regulation on intraproductive profit-and-loss accountancy at industrial plants in the conditions of self-financing and self-management]. Moscow, Institute of Sociology, Academy of Sciences of USSR Publ., 1989, 114 p.
Ryan B. Strategicheskii uchet dlya rukovoditelya [Strategic Accounting for Management]. Moscow, YUNITI Publ., 1998, 618 p.
Fishman J.E., Pratt S.P., Griffith J.C., Wilson D.K. Rukovodstvo po otsenke stoimosti biznesa [An Estimate Guidelines for Business Value Assessment]. Moscow, Kvinto-konsalting Publ., 2000, 369 p.
Horngren C.T., Foster G. Bukhgalterskii uchet: upravlencheskii aspekt [Cost Accounting: A Managerial Emphasis]. Moscow, Finansy i statistika Publ., 2000, 416 p.
Ackoff R.L. Creating the Corporate Future: Plan or Be Planned for. New York, John Wiley & Sons, 1981, 312 p.
Edwards E., Bell P. The Theory and Measurement of Business Income. Berkeley, University of California Press, 1961.
Ehrbar A. EVA: The Real Key to Creating Wealth. New York, John Wiley & Sons, 1998.
Fernandez P. Three residual income valuation methods and discounted cash flow valuation. Barcelona, 2003. Available at: Link.
Forrester J.W. A New Corporate Design. Industrial management review, 1965, no. 7, pp. 5–17.
Halal W.E., Geranmayeh A., Pourdehnad J. Internal Markets: Bringing the Power of Free Enterprise Inside Your Organization. New York, John Wiley & Sons, 1993, 301 p.
Monden Y., Miyamoto K., Hamada K., Lee G. Value-Based Management of the Rising Sun. Singapore, World Scientific, 2006, 528 p.
Stewart G. B. The Quest for Value: The EVA Management Guide. New York, Harper Business, 1990.
White G.I., Sondhi A.C., Fried D. The Analysis and Use of Financial Statements. New York, John Wiley & Sons, 2003, 215 p.
