Business Valuation Based on Assets Replacement Cost
Yuriy V Kozyr*
Central Economics and Mathematics Institute of Russian Academy of Sciences, Moscow, Russia
- *Corresponding Author:
- Yuriy V Kozyr
Central Economics and Mathematics Institute of Russian Academy of Sciences
47 Nakhimovsky prospect, Moscow, Russia
Tel: +7 495 938-03-09
E-mail: [email protected]
Received date: September 22, 2016; Accepted date: November 27, 2016; Published date: November 28, 2016
Citation: Kozyr YV (2016) Business Valuation Based on Assets Replacement Cost. Arabian J Bus Manag Review S3:001.
Copyright: © 2016 Kozyr YV. This is an open-access article distributed under the terms of the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original author and source are credited.
According to the established valuation practice, when valuing businesses (companies, business units and other retail assets) the income and market approaches are generally applied. The use of the cost approach is rather limited and is normally employed when valuing small companies (those that have not reached their breakeven point or those having little historic data) and holding groups. The article suggests modernization of the cost approach, aiming to broaden its scope of use through the integration of some income approach elements. The article provides a description of this valuation technique, which the author calls Assets Replacement Cost Method (ARCM). It relies on the replacement concept, according to which the investor will not pay more for an asset than the total cost necessary to create an asset of equal utility, be it by means of acquisition or construction. This method is based on the cost approach and incorporates some elements of the income approach, which allows optimizing the strengths and weaknesses of both methods. From the author’s point of view, this method can be classified as hybrid, similar to the Economic Value Added (EVA) and Edwards-Bell- Ohlson (EBO) valuation approaches.