2. Business Valuation Content • Legal Regulation in the Czech Republic • Expert`s Report • Business Conception • Economics Scheme of Business • Assets • Equity • Liabilities • Valuation principles • Task for the next lecture Legal Regulation in the Czech Republic According to Act. no. 36/1967 Coll., about Expert Witnesses and Interpreters • expert witness • official referee • authorized expert • skilled witness Established by the Minister of Interior or by the judge of district court Legal Regulation in the Czech Republic According to Act. no. 455/1991 Coll., Trade Code • valuer • estimator • evaluator • appraiser • assessor • surveyor Business - trading licence Epert`s Report Content and Structure • Expert`s determination • Judgement Business Conception In economics sense - enterprise, firm, company Business is a legally recognized organization designed to provide goods and/or services to consumers. Sullvivan, Arthur; Steven M. Sheffrin (2003).Economics: Principles in Action. Upper Saddle River, New Jersey 07458: Pearson Prentice Hall. pp. 29. Business is money engine. Business Conception According to COMMERCIAL CODE No. 513/1991 Coll., as subsequently amended "Obchodni zakonik": For the purposes of this Code, an enterprise is understood to be the aggregate of tangible, personal and intangible components constituting a business activity. Things, rights and other property values which belong to the entrepreneur and which are used to operate the enterprise, or which, because of their nature, are intended to serve this purpose, are appurtenant to the enterprise. An enterprise is a collective thing (universitas rerum). Its legal relations shall be subject to the provisions concerning things in the legal meaning. This shall not affect the scope of specific statutory "provisions on real estate (immovables), objects of industrial intellectual (intangible) and other intellectual rights, motor vehicles, etc., if these form part of an enterprise. Under the Commercial Code, an enterprise is regarded as an object of legal relations, and it corresponds roughly to the French concept of "fonds de commerce". The definition does not mention debts (liabilities) pertaining to an enterprise. Nevertheless, in the case of sale of an enterprise, debts pertaining to the enterprise are sold together with the enterprise. An entrepreneur may own more than one enterprise. Economics Scheme of Business • general accounting rules • fundamental accounting statement o balance sheet o income statement o cash flow statement • What are the assets that the firm has in place already, and how much are they worth? • What are the growth assets of the firm and what is their value? • What is the firm earning on its assets in place, and what can it expect to earn on these same assets as well as its growth assets? • What is the mix of debt and equity that the firm is using to finance these assets? • How much risk is there in this firm, and what is the cost of its debt and equity financing? Assets Assetsare things that the company owns. They are the resources of the company that have been acquired through transactions, and have future economic value that can be measured and expressed in money. Assets also include costs paid in advance that have not yet expired, such as prepaid advertising, prepaid insurance, prepaid legal fees, and prepaid rent. Fixed Assets • Property • Plant • Equipment • Investment property • Financial assets • Biological assets - biological assets, agriculture, sivilculture, horticulture Current Assets • Cash and cash equivalents • Inventories • Account receivable • Prepaid expenses Equity so called shareholders´equity • Authorised capital • Par value of shares • Authorized shares (fully paid and not fully paid) • Treasury shares, shares held by subssidiaries and associates • Reserve funds • Profits • Retained profits Liabilities • Account payable • Financial liabilities • Deferred tax liabilities • Liabilities for current tax • Reserves • Unearned revenue for services paid for by customers but not yet provided Example of small business balance sheet Source Task for the next lecture Conception and contents according to legislature in your country or IFRS: • Balance Sheet Statement • Income Statement (Profit and Loss Statement, Earnings Statement, Statement of Operation) • Cash Flow Statement Thank U for Attention!