G32 - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; GoodwillReturn

The article focuses on estimating the equity risk premium when valuing companies located in the Czech Republic and other European countries with comparable risk profiles. It highlights key challenges associated with traditional data sources, particularly from the U.S. market, which may lead to distorted estimates. The article presents a calculation of the implied equity risk premium based on current data from European companies with similar risk characteristics. This calculation, performed using the bottom-up approach, eliminates the need for additional premiums for country risk and company size. Estimates of the implied equity risk premium for large and mid-sized companies are regularly updated and published on the European Valuation Institute website (www.evalin.org).

The article presents the results of an empirical analysis of the past time series of production growth in the main branches of the Czech economy. The period from 1993 to 2019 is analyzed. A regression analysis of the linear dependence of industry growth on GDP growth, an analysis of long-term growth averages and an analysis of the development of the ratio of sector growth to GDP growth are performed on the data. The aim is to point out the possibilities of using the given methods as a partial basis for valuers when they estimate the long-term growth rate of the valued business. The results show that only some sectors have a connection with GDP development. Long-term and moving averages of industry growth appear to be a relatively useful tool, but they need to be supplemented with other methods and analysis of factors affecting the industry when estimating future growth.

This article focuses on financial structure and its impact on return on equity. In the case study an important Czech brewery Budweiser Budvar is analysed. The brewery is currently conservatively financially managed, thus the aim of the article is an analysis of change in return on equity with alternative capital structures while taking extra risk arising from higher leverage into account.

The article is devoted to the issue of industry market multiples in valuing companies in terms of accuracy. A total of 1 266 US companies traded on regulated capital markets in 2010-2019 were selected for analysis. The main goal is to determine own values of the six most commonly used multiples for the US market, the median and the arithmetic average, and then to investigate deviations in these values in terms of company size, industry, company size in industry, time and values of Damodaran multiples. The analysis shows that it is more appropriate to use the median of industry multiples over a simple arithmetic average, the method of multiples for larger companies is not clearly more accurate, entity and equity multiples also do not show clear results in terms of accuracy. If we use our own industry multiples, it is possible to achieve higher accuracy of valuation than when using multiples of Damodaran. The multiples of the larger companies in the industry do not reach convincingly higher values than the median of the industry and also that the development of the multiples varies significantly over time.

The aim of the article is based on data from the Amadeus database to find out to what extent it is appropriate to take over the average indebtedness of companies on foreign capital markets for the valuation of companies operating in the Czech Republic, which are in most cases non-traded companies. The second part of the article focused on three sectors: manufacture of machinery, manufacture of pharmaceutical products and construction. The capital structure of companies in the Czech Republic, Poland, Germany, France and the United Kingdom was examined.
The analysis shows that in European countries, non-traded companies are significantly less indebted than traded companies. Taking over the indebtedness of foreign traded companies for the valuation of non-traded Czech companies is thus completely inappropriate. When valuing traded companies, it is possible to take foreign data into account, but only with caution, because the amount of indebtedness varies considerably in different European countries and even within one country there is a large variance of debt values between individual companies.

The aim of the second part of the article is to verify on a sample of published expert opinions how large errors may occur due to an incorrectly determined capital structure or the use of an inappropriate reagental function in a discount rate. The analysis in the examined sample showed a percentage error in the net value from the main operation from - 59% to + 32%, for remote results even up to + 298%. It turned out that the error is large even with the correct tuning of the capital structure, if an inappropriate reagent function is used to recalculate the cost of equity. The largest range of errors was based on assessments with an inappropriate reagental function and at the same time the target capital structure. The DCF equity method more often led to an underestimation of the resulting valuation and showed a higher average and median error than DCF entities. However, the DCF entity method had a wider range of errors found.

The aim of the article is based on data from the Amadeus database to find out to what extent it is appropriate to take over the average indebtedness of companies on foreign capital markets for the valuation of companies operating in the Czech Republic, which are in most cases non-traded companies. The first part of the article focused on three sectors: paper production, chemical production and electricity production. The capital structure of companies in the Czech Republic, Poland, Germany, France and the United Kingdom was examined.
The analysis shows that taking on the indebtedness of companies operating in foreign markets is not suitable for Czech companies, for two main reasons: 1) non-traded companies are significantly less indebted than traded companies, 2) market structures of foreign traded companies in the surveyed sectors are widely dispersed. and show no narrower range of normal values.

The aim of the article is to map the situation of Czech expert practice on a sample of published expert opinions, namely the methods used to determine the capital structure for a discount rate, the projection of indebtedness into the cost of equity and methods used for estimating of the cost of equity and their main components. The analysis included 105 expert opinions with the income valuation of the company, of which 81 included the valuation of the indebted company.
The main findings of the analysis: the positive fact is that 54% of expert opinions use a tuned capital structure through iterations for each year, but 19% of opinions work with the target structure, which means inconsistency in valuation. The worse situation is in the use of reagental functions to recalculate the cost of equity. Although the cost of equity is recalculated according to the amount of indebtedness, 78% of expert opinions use the least suitable function for the conversion of beta, and only 15% of expert opinions use a more appropriate function. On the positive side, more than a quarter of the expert opinions included an ex-ante estimate of the capital market risk premium. However, for all the examined criteria, there were always several expert opinions containing more significant shortcomings.

This article deals with an analysis of an impact of accounting standard IFRS 16 leases on EV/EBITDA multiple. The analysis was done on a sample of companies from industry groups "Air transport" and "Retail (Grocery and Food)", which are used by professor Damodaran in calculation of data provided by him. Initially a research of companies included in these groups has been carried out. Then subsequently an impact of IFRS 16 application, based on financial data from financial statements of selected companies, on Enterprise value and its components was assessed. Impacts on EBITDA were also assessed. To conclude the analysis, a total impact on EV/EBITDA multiple was quantified, based on which, recommendations on the use of EV/EBITDA were made.

This paper discusses the issue of the equity risk premium puzzle, launched by the article by Marik a Marikova (2019a, 2019b). The introductory part of the article focuses on the essential conclusions from the above article. Furthermore, the paper pays attention to deepening the interpretation of the CAPM model. The following part of the paper discusses the limitation of the approach, which is based on the implied risk premium. The final part of the paper analyzes the alternative methods of determining the equity risk premium.

Strategic analysis is a key starting point for company valuation, but expert practice with this part of valuation still does not work adequately. The article therefore justifies the need and purpose of strategic analysis. It further shows that frequent ways to justify the absence of a strategic analysis are to use the flat-rate income method or to take over a financial plan from the valued company. In the third part, the text discusses the main procedures that should be used in a well-designed strategic analysis. Significant space is devoted to the use of professional analyzes and forecasts prepared by specialized institutions, which should gradually gain greater representation in Czech expert practice than has been the case so far.

The article responds to the inclusion of the criterion of truthfulness as a requirement for expert opinions in the new legal regulations governing expert activity. The aim of the article is therefore to discuss the extent to which the truth of expert opinions aimed at valuing the company can be assessed. The first part of the text discusses the possibilities of assessing the truth in the individual steps of valuing the company. The article shows that the veracity of this type of expert opinion can be assessed only to a very limited extent, because the valuation is largely based on estimates and forecasts. It is almost impossible to assess the veracity of the forecast from the point of view of the valuation date. In the second part of the article, other quality criteria are explained and analyzed, which are much more suitable for expert opinions on the business valuation than the criterion of truthfulness.

The article discusses briefly the importance and need for the solution, respectively, it discusses the importance of the introduction of the calculated depreciation to the valuation of the discounted cash flow model. The article derives and explains the importance of the spread function as the difference between ROIC resp. ROA and WACC for estimating parameters that affect the business value. It describes the procedure for quantification of the total capital involved in the operation of the enterprise. It proposes a solution using a set of two equations of two unknown for the simultaneous calculation of the business value and goodwill value within the Value in the Use concept. It provides the necessary feedback among the conclusions of the technical base analyzes, the strategic and financial analyzes, and the value generators, respectively, it provides a consistency check of basic input parameters, including a WACC estimation.

Paper deals with the comparison of the total indebtedness of companies in the 15 member states of the European Union and in 10 sectors. The median values of indicators of debt to assets ratio, long-term credit indebtedness and short-term credit indebtedness are selected for measurement. The results of the analysis show a wide range of values achieved by country and by sectors. Some conclusions can only be made about certain preferences of long-term or short-term credit indebtedness within some countries or some sectors.

The article examines methods that can be potentially used for the estimation of the cost of debt of Czech companies in the short term (1st period of the two-phase evaluation). The overview and basic description of these methods is the first part of this article. The available methods are compared according to the factors which they reflect and according to the difficulty of the estimate. The second part consists of the application of the chosen methods on two real entities. This section is followed by the recommendations regarding the appropriate method that can be used for the estimate of costs of debt including the scheme showing possible decision process which leads to the choice of a suitable approach.

In the first part of the article models for ex-ante market risk premium estimation based on dividends and free cash flow were analyzed. The aim of this second part is to introduce and analyze models based on residual profits, evaluate various models and submit recommendations for the Czech Republic's conditions. The use of the residual profit model is also illustrated by a model example and empirical data obtained by these models are presented. The article concludes that models based on residual profits are more suitable for practical use in Central European conditions than models based on dividends, FCFE or earnings. Residual profits require input data that is relatively easy to obtain while being economically equivalent to free cash flow models. We recommend especially the Claus - Thomas model, which works with long - term growth.

The scope and scale of the risks of losses by the credit provider and by the credit guarantee provider are identical in their economic nature. The article uses this identical nature of the credit risk and guarantee risks to provide methodological guidance to identify (quantify) the potential market price (value) of third-party liability guarantees using information on credit interest rates provided on the market by banking and non-bank institutions, as well as, where appropriate, information on venture capital fund required rate of return.

The objective of the article is to seek an answer to the question of how to estimate the cost of equity and, in particular, the risk premium of the capital market for income methods within estimation of the market value of a business. In current valuation practice, the use of historical capital market premiums predominates significantly. However, this procedure is neither theoretically consistent with the CAPM model nor fully consistent with the market value concept. The issue of how to use market data and market expectations for the future has long been addressed by some Western authors. In doing so, they concluded that the most appropriate would be based on normal income models for the valuation of shares, from which we can estimate the required return on the principle of the future internal yield percentage. After deducting risk-free rate, we then obtain an ex-ante risk premium estimate. These models exist in several variants. This first part of the article discusses a group of models based on dividends and FCFE. The second part of the article will deal with models based on residual profits. In the future, we would like to reach estimates of risk premiums directly for central European conditions, because the ex-ante approach opens the way for this.

The article analyses the ways in which subsidies are reflected in the accounting data and specifies the locations which may give the valuer distorted information and an inappropriate basis for the valuation of the undertaking. The main implications of the accounting effects of the subsidies on the value drivers and the valuation of the enterprise are explained in the text. The most important risk is overvaluing the company's profitability and undervaluing its assets. The results of the analyses are the proposals for adjustments to the accounting data and their transfer to an economic model and other proposals of recommendation on how to handle subsidies in the valuation of an undertaking.

This article is devoted to the issue of valuation of the company's technical base and its use for comprehensive income valuation. This article further describes in detail the quantification of the tangible assets from the point of view of the corresponding value base, with an emphasis on the company's income valuation. Part II of this article will be devoted to the valuation of intangible fixed assets and the significance of the "spread" indicator.

The second part of the article is aimed at presenting a complete set of functions for the calculation of the leveraged beta coefficient. While the previous first part of the article dealt with procedures appropriate at a stable level of debt, this second part of the article presents equations for the calculation of leveraged betas appropriate at a changing level of debt, for different assumptions regarding the discount rate for tax shields: a discount rate at the cost of debt, a discount rate at the level of unleveraged equity costs and, in particular, a design of a universal function enabling the valuer to choose any discount rate for tax shields. At the same time, the article explains how to apply these functions specifically, in particular how to calculate the betas of debt and betas of the tax shield that are necessary for the correct calculation of the leveraged beta.

Kralicek's Quicktest is one of the most popular creditworthy models in qualifying works. The article compares the original construction of this model with its description in 14 Czech textbooks in order to help users of financial analysis to apply it correctly, as Czech authors approach very differently to fill some input items, such as cash flows. At the same time, the article assesses the expansion of this model in the world and examines references in the scientific literature in databases of Web of Science and Scopus. Finally, the occurrence of Kralicek's model in qualifying works at the Faculty of Finance and Accounting at University of Economics, Prague was investigated for the period from 1st January 2007 to 17th October 2018.

The article examines the correlation of the costs of foreign capital and the set of financial variables. The sample of 8,359 companies has been chosen from the companies which were active in the period 2013-2016 in Czech Republic. The main used method is correlation analysis. The article examines the correlation on the complete sample, on the percentiles and within deciles sorted according the absolute level of debt. As the result of this analysis, there are the most suitable financial variables and functions chosen, which can be used for the estimation of the costs of foreign capital.

The article examines the problems associated with the application of the simplest and most popular equation for calculating the debt beta coefficient. It shows that the use of this function may result in a significant error in the resulting valuation of the company, since it assumes that foreign capital has a stable level on a permanent basis and is at the same time risk-free. The text shows that if debt is stable, the present value of the tax shield and thus the resulting value of the enterprise is not dependent on the cost of debt. However, if there is a different level of interest on debt from the risk-free interest rate in the financial plan, the valuation contains a different assumption regarding the cost of debt in the plan and another at a discount rate. The error in the resulting business value is due to this internal inconsistency. It is further shown in the text that the function for leveraged beta must therefore be supplemented by a beta of debt and it is explained how to calculate this beta of debt. This creates a formula for leveraged beta that provides the same valuation of the business as the function for leveraged cost of equity based on the Miller and Modigliani model.

The article analyses several problematic elements of valuation, which are currently significantly discussed and it proposes some recommendations to them. First of all, it is not possible to require that an expert opinion on the valuation is correct and at the same time unique. It is possible only create national valuation standards, put emphasis on ethics of experts and on compliance with the general principles for the testimonials. Secondly, it is necessary to classify the market value in an international concept to the Czech legislation. It is not appropriate to create various variations of the market value and the common price. Third, the article suggests some options how to apply the principle of highest and best use in assessment of a market value of business. Fourth, the authors analyze the system of value bases used in valuation for squeeze-outs and suggest ways for application of the equitable value for these purposes. Fifth, the article analyzes the main errors and recommendations when using the asset-based valuation of the company.