პროფესორი, ეკონომიკის, ბუღალტერიისა და ფინანსების განყოფილება, ალეკსანდრე სტულგინსკის უნივერსიტეტი, კაუნასი, ლიტვა
Determination of the Fair Value of a Multifunctional Family Farm
(ბიზნესის ფინანსური უზრუნველყოფისა და მართვის აქტუალური საკითხები)
Introduction and aim: Research problem is how to determine the fair value of a multifunctional family farm, being a private business organisation with specific cash flows, the impact whereof on the fair value comes through different discount rates: market-based and social discount rates?
Research object is the fair value of a multifunctional family farm.
Research purpose: to conduct synthesis and analysis of scientific research into the fair value of business organisations and its drivers, to develop a model of the determination of the fair value of a multifunctional family farm and to adapt it for a family farm.
Research methodology: Research methods: logical analysis and synthesis, comparison, composition-decomposition, modelling, calculation of financial and statistical indicators, discounting and forecasting.
Results and implications: The author analyses problems of the determination of the fair value of a multifunctional family farm using the method of discounted cash flow (DCF), presents a model of determination of the fair value of a multifunctional family farm and adapts it for a selected family farm. The specificity of the cash flows in a multifunctional family farm is related to the cash flows from financial support, different value drivers of the EBIT and their calculation methodology, and the value of created public goods. Two types of discount rates are used to determine the value of a family farm: market-based and social discount rate (SDR). It is appropriate to use the SDR to discount the cash flow of investment, the economic and social benefits whereof are distributed among present and future generations. The stages of the determination of the fair value of a farmers’ farm include: value drivers’ decomposition; differentiation of cash flow and discount rates and measuring value drivers; forecasting cash flow and discount rate value drivers; value drivers’ composition; determination of the terminal value; cash flow discounting.
Conclusion: Using the DCF method for determining of the fair value of any business organisation, two key value drivers must be estimated: free cash flows and the discount rate. The specificity of the cash flows in a multifunctional family farm is related to the cash flows from financial support, different value drivers of the EBIT and their calculation methodology, and the value of created public goods.
In general, the cash flows from financing activity are not included in FCF determining the fair value. An exception is grants related to assets, which are non-repayable and increase the cash flows for the owners. When the FCF are increased by the amount of the received grants for assets, the EBIT is not adjusted by the depreciation expenses of the subsidized fixed assets.
The marginal profit from the sale of products and provision of services, being the key EBIT driver, is decomposed into three value drivers: the sales volume, the sales price, and the unit cost. Using the method of decomposition, all the other EBIT value drivers are reflected in the cash flows according to the statement form prescribed in Business Accounting Standard 3 "Income Statement“ for entities, whose typical activities are cultivation of biological assets, production and treatment of agricultural produce, processing of agricultural produce of own and treatment production.
Cash flows related to investments the economic benefits whereof will enjoy future generations must be discounted at the SDR. Currently under the Rural Development policy 2007–2013 such investments include investments into first afforestation of agricultural land, first afforestation of non-agricultural land, actions to restore forestry potential and prevention actions, an non-productive investments linked to forest-investment payments.
The main stages of developed valuation model of the multifunctional family farm are following: decomposition of value drivers; differentiation of cash flows and discount rates and measurement their value drivers; forecasting of value drivers of cash flows and discount rates; composition of value drivers; determination of terminal value; cash flows discounting.
Value drivers of FCF are forecasted using quantitative methods: trend function, arithmetic and moving average, simple forecast method, forecasting in proportion to sales revenue, method of ratios calculation.
Cost of equity is calculated using modified CAPM and including total, not only systematic, risk. WACC is calculated under the assumption that capital structure is rebalanced to target capital structure. Value drivers of WACC are forecasted using trend function or simple forecast method, excluding target capital structure, risk of family farm and OMXBB index, and effective tax rate (the historical values are used). SDR are used declining over time, taking into account the opinion of most researchers.
Keywords: fair value, multifunctional family farm, free cash flows, discounting