Investment value is a specific concept. This indicator is calculated using an individual approach to each potential investor, depending on the objectives of the practical application of the investment object. It is impossible to calculate it once and then publish an advertisement. Ultimately, the volume of investments will be determined depending on the investor's goal.
Investment value can be interpreted as the value of intellectual property for each specific investor. When determining it, the investment conditions and the investor's ultimate goal are taken into account. It is noteworthy that this indicator can differ radically from the market price of the object. This is due to potential income, which can either significantly exceed the market value, or vice versa.
Investment value primarily reflects the investor's goals that are not related to the subsequent sale of the investment object. To determine this indicator, a number of key factors are taken into account:
the amount of taxation imposed on the enterprise;
the total value of material costs;
identification and determination of risks for deposits;
calculation of the profitability indicator;
assessment of potential profit and turnover.
Having determined these indicators, you can get an idea of the investment value of the object. If it is higher than the market value, then this indicates the attractiveness of investments and high potential profit for investors. If the preliminary investment price turned out to be lower than the market value, then there is probably a difficulty in attracting investments.
In addition to market and investment value, the price of an object can be:
Liquidation value – determined by auction. This is the real price at which a bankrupt enterprise or property seized by a court decision can be sold. The liquidation value of an object can also be determined in addition to the market value when applying for a loan secured by this object.
Disposal value – determined after the object has failed, or at the end of its practical use, or in the presence of significant damage, due to which the operation of the object for its intended purpose is impossible.
Recovery value – to determine the level of taxation or for correct accounting.
Special value – a price that is an addition to the market value of the object. It is calculated if the object is physically, legally or economically connected with the property being sold.
These types of value can be taken into account both when selling private property and when making transactions with large enterprises.
The investment value of the enterprise is determined depending on the specific investor or groups of persons, taking into account the certainty of the tasks of strategic investments for the further operation of the object of possible investments. There is a certain level of enterprise value, above which the transaction loses its meaning for the investor.
The investor is always interested in receiving a higher profit, therefore, in practice, during negotiations between the parties, the investment value does not differ significantly from the market value. To understand this process, it is necessary to consider and understand the key reasons for strategic investments:
vertical integration of the enterprise, which involves the acquisition of objects to expand the industrial base;
development of an oligopoly or monopoly by eliminating competitors by acquiring their commercial property;
purchase of promising assets below market value during an economic crisis;
increase in the capital of the enterprise by restructuring internal assets;
bringing the company's products to related markets, which will allow implementing a diversification strategy in relation to potential clients;
acquisition of new marketing and management technologies;
determination of potential synergistic effects.
The investment value of the company clearly reflects the prospects for its development, so it often significantly exceeds the market value. The main task of conducting an investment assessment of an organization is to determine the optimal value of the enterprise for the investor to make a decision. In addition, the investment value may be of interest to banks, as well as audit government agencies or insurance companies.
Determining the investment value of an enterprise is relevant in the following cases:
if the sale of the appraised enterprise is planned with one counterparty;
if the object is considered as an investment;
when carrying out activities aimed at reorganizing the company;
for conducting an analysis or for the purpose of substantiating the investment potential of the company.
Taking into account the specifics of determining the investment value, when assessing it, it is important to consider a number of key factors:
current and potential material costs/income;
assessment of the future value of the enterprise;
current tax status;
level of predictability.
These features take into account not only current market conditions, but also the individual requirements of the investor.
Book value is a value that corresponds to the price of an asset in the balance sheet line. In essence, this is the actual price of an enterprise excluding depreciation and surplus value. What is commonly referred to as the initial or original cost is referred to as the gross book value in IFRS. Investment objects may be:
funds;
shares;
industrial equipment;
private enterprises or large companies.
The book value of a company is determined based on the data in accounting books. As a rule, this is the initial cost of an object after deducting funds spent on depreciation. This indicator may coincide with the market price only at the time of acquisition of the asset. In other cases, the book price may differ significantly from the market value of the enterprise.
Investment value is the price of an asset, which depends on the investor's goals and investment conditions. It is determined individually in each specific case. The main purpose is to determine the development prospects of a company in order to identify the degree of attractiveness for investors. Therefore, the IP indicator may differ significantly from the market value of an investment object. The investment value assessment is carried out taking into account market conditions, as well as the tasks and goals of the investor.
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