Evaluation of business reputation. Why do you need to assess the business reputation of a company?

Until recently, the assessment of business reputation was carried out only by Western companies. But with the spread of international financial reporting standards, the concept of "Goodwill" has increasingly been used by Russian organizations. Although for many companies moving to IFRS, the term "goodwill" has a vague meaning, and when determining the value of a company, the assessment of the image and reputation is carried out on the basis of the intuition of the owners or expert opinion.

The lack of a clear unified calculation algorithm causes a distortion of the organization's market value, and sometimes the disruption of commercial transactions. But when evaluating a business, goodwill, or otherwise goodwill, can significantly increase the value of the company. Such an intangible asset not only has an actual value for which an enterprise can receive money, but in some cases become the only valuable asset for which new owners are ready to purchase an “image” business, even if it is unprofitable. Let's consider what role the assessment of business reputation plays for an enterprise.

The value of the company's image

Surely, many financial professionals who worked in the retail sector were faced with the need to open unprofitable outlets. The company obviously does not expect to receive high profits, but at the same time opens a store in a prestigious shopping center or in the area of ​​a more successful competitor. Ideal in this case is to bring the store to self-sufficiency. But even if this is not possible, the enterprise can still support the vital activity of such an outlet at the expense of other, more profitable stores.

In Russia, such an entrepreneurial decision is considered rather political. But, in fact, the company in this way earns an image, thereby increasing the value of its business reputation. In addition, at some point, the company can become a leader and outperform its competitors. Although there are risks, of course. Uncontrolled "blowing up the image" can cause not only huge losses, but also bankruptcy.

Goodwill is a term that means the business reputation, image, business relations of a company that have a valuation.

Business valuation

To evaluate a business, you will need to conduct a number of activities and determine the value of the company's assets. First of all, real estate, equipment, stocks, cars, financial investments, securities and intellectual property.

It will be necessary to evaluate the efficiency of the enterprise, both in past and future periods. At the same time, examine in detail the income and expenses of the company. You can use the comparative method, which allows you to predict the prospects for the development of the company, as well as assess its position in the competitive environment. To do this, all financial indicators of the organization are compared with those of peer companies. If necessary, you can conduct an organizational analysis of the enterprise. It allows you to study in detail the business processes of the company, evaluate their effectiveness and predict the prospects for business development.

Note that the very concept of "goodwill" was introduced by Western economists, who determined that the cost of any product, service or business is affected by its reputation, reliability and status. They developed a special calculation that allows you to estimate the cost of such an extra charge. As for the Russian analogue of goodwill, article 150 of the Civil Code of the Russian Federation highlights the concept of business reputation, which is included in intangible benefits.

Goodwill in IFRS

According to International Financial Reporting Standards, gouwill is the difference between the cost of a business combination and the fair value of the entity's net assets. It is worth noting that if the company has a positive business reputation, then it must be regularly tested for impairment. And if such factors have arisen, then the amount of such revaluation should be charged to other expenses.

But negative goodwill (ie negative goodwill) may arise if the acquisition price of a business is lower than the fair value of assets and liabilities at the acquisition date. In this case, goodwill or goodwill is recognized as other income.

Example
At the beginning of 2012, Company A purchased all assets and liabilities from Company B. The contract price of the transaction was $240,000. Immediately after the purchase, the new owner revalued the assets and liabilities received from company B. Their market value at the date of the transaction was $200,000.
At the same time, the depreciation of goodwill is 10% per year.

Thus, the value of goodwill (estimation of business reputation) will be equal to:
240,000 - 200,000 = $40,000
In accordance with IFRS, it is this cost of goodwill that company A will register in accounting.

At the end of 2012, entity A makes an adjustment entry for impairment of goodwill in the amount of:
$40,000 * 10% = $4,000
Thus, the cost of goodwill at the end of 2012 will be:
$40,000 - $4,000 = $36,000

The business reputation of an enterprise is qualified by the Civil Code as an intangible asset. This indicator has a significant impact on the market value of the organization. How to assess the business reputation of a company, read the article.

From the article you will learn:

Download related documents:

Why analysis of the business reputation of an enterprise is necessary: ​​an example

The administration of a large city confiscated land from the owners for municipal needs for the reconstruction of the highway. The demolition included a building in which a popular restaurant had been operating for several years. He had a constant circle of visitors and formed a positive business reputation.

The city offered the restaurant owner compensation equal to the book value of the company's assets. The businessman was not satisfied. He turned to an independent appraiser. The business reputation of the company was assessed. Goodwill was calculated and included in the cost of the restaurant as a ready-made business. The amount of compensation paid to the owner of the building was eventually increased by almost 20%.

What is the difference between the image and business reputation of the organization

The concepts of image and business reputation of an organization are related to the same legal entity and are interconnected with each other. But the sources of formation of these intangible assets are different.

Organization business reputation management

Analysis, assessment of the experience and business reputation of organizations allows you to find existing problems, outline ways to solve them.

The answer to the question of how to assess the business reputation of a company depends on the choice of assessment methods. For this are used:

• Qualitative assessment methods. Sociological surveys, ratings that do not allow calculating the exact value of goodwill, but fixing its change in a positive or negative direction.
• Quantitative evaluation methods. Their application allows to obtain quantitative indicators of intangible assets that form a business reputation.

A good name sometimes brings more profit than the actual economic activity. The real situation is when the balance sheet is zero, and the market price of the enterprise is quite noticeable. This is primarily due to business reputation - such an intangible asset that brings a very real daily income and will - if nothing happens - bring it in the future.

The need to measure goodwill can arise in a variety of situations. Most often, the price of business reputation is considered before the sale of a business - in order to justify the price of the company to a potential buyer. The price of goodwill is also of great importance when expanding a business through franchising. And a timely assessment of goodwill can be of undoubted importance in various litigations. For example: if the state decided to build a federal highway through the territory of the plant and is going to compensate the enterprise only for the book value of assets, then you can make a claim for damages not only within the valuation of tangible property, but also within the limits of damage due to loss of goodwill. No less important is the assessment of goodwill in claims for the protection of business reputation - both with the same franchisees, if they behave differently from the way the parent company would like, and with other companies that encroach on the cleanliness of the face.

Estimates of goodwill are based mainly on two methods: estimating excess profit due to high reputation and estimating the difference between the value of the business as a whole and the value of its tangible assets. In the first case, first of all, the average market price of similar goods or services is calculated. The difference between the price of the enterprise under consideration and this average shows the “name premium”. Taking into account sales volumes in physical terms, the additional income received by a company with a high reputation is calculated. Based on this indicator, the desired value of the goodwill price is displayed.

The second option is an expert assessment of the price of a business, and an expert assessment is the price of a property that can be somehow determined and fixed. The difference between these two figures will be considered the price of goodwill.

The third option, rather rarely used due to technical complexity, is an estimate by analogy. With this option, the price of transactions for the sale of similar (by scope and scale, as well as by territorial location) unpromoted businesses and the price at which the buyer is ready to buy the business being valued are compared. The difference is considered goodwill.

The accounting version of the valuation, the only one allowed by Russian law, can be implemented only after the sale of the enterprise. Here, the price of reputation is defined as the nominal purchase price of an enterprise minus the book value of its assets. This amount can be written off through depreciation.

The only way to put goodwill on the balance sheet before the sale of property is to inextricably link it with the exclusive right to own a trademark, service mark, etc. Then you can evaluate the intangible asset and enter the resulting value in the item “intangible assets” of the balance sheet.

So, in those cases when the enterprise is not for sale, there is no automatic assessment of its business reputation. Therefore, in order to substantiate your claims - to a competitor or to the media - it is necessary to have documentary evidence of the goodwill price. Such a document is a valuation report that complies with the legislation of the Russian Federation and the standards of valuation activities. The report must be prepared by an independent licensed appraisal organization that has insured its professional activities.

In the absence of such a document, any claims of the company regarding damage to business reputation have no basis. Therefore, it makes sense for enterprises that begin to feel an increase in profits without an increase in material investments or discover a competitor who has come from nowhere, copying activities and at the same time deceiving consumers, it makes sense to take care of obtaining an appraisal act - then the court can present evidence of material damage from the actions of third parties.

When selling a business with goodwill, there are additional tax consequences. The seller has a profit that is not compensated by any costs and is fully subject to profit taxation. VAT on sales at a price different from the book price is calculated according to a special procedure prescribed in Art. 158 of the Tax Code of the Russian Federation. If the seller of the enterprise is an individual, then it is much easier to deal with the taxation of the seller. Depending on the period of ownership of the enterprise (and its price), the seller will have to pay 13% personal income tax or pay nothing.

There is an international accounting method. IAS 22 Business Combinations recommends that goodwill be calculated as the difference between the cost of an acquisition (investment) and the investor's share of the fair (i.e., estimated) value of the identifiable assets and liabilities being acquired at the date of the transaction. It is the positive difference that is called goodwill and is recognized as an asset in the balance sheet.

The company's own business reputation as an expectation of economic benefits associated with the operation of this enterprise cannot be registered as an intangible asset.

But there are only two cases when it is necessary to know the exact value of business reputation: when the company is sold and after the reputation has been damaged. Therefore, domestic companies often do not see the point in knowing the specific cost of their reputation. The assessment of goodwill allows the company to better understand how it is perceived by its business environment and develop a set of measures to improve its own business reputation. The expert method is quite enough for this.

When applying the method of sociological surveys, the opinion about the company is learned from people belonging to its target audiences. They can be representatives of the executive and legislative authorities, market analysts, investors and shareholders (their attitude determines the reaction of the stock market), the media, consumers of products.

As practice shows, such an estimate is the most accurate. All other methods can only give a detailed confirmation or dot the i if there are controversial issues. The willingness of consumers to use the services of this company is the main content of the reputation. Therefore, this commitment determines the value of goodwill.

The main disadvantage of this method is that it is not so easy to get the opinion of people with real influence, because of their busyness or unwillingness to speak sincerely. However, any opinion poll suffers from this.

In addition, it is hardly worth converting the percentages of opinion poll data into monetary units. Otherwise, it may lead to unexpected results.

The next method of a qualitative approach is the expert one, which in turn is divided into two subspecies: rating and recommendation. The first one is the compilation of business reputation ratings by independent organizations. The recommendatory method consists in discussing the company's goodwill by experts from PR companies and giving advice on how to change it.

The main feature of the rating method is that a company that wants to evaluate its reputation does nothing on its own. The ratings are compiled by respected independent organizations. Because of this, getting into it itself increases the reputation of the company being valued. They are dealt with by Fortune magazine, Financial Times newspaper.

In addition to business reputation ratings, there are corporate governance ratings (CGS) close to them. In Russia, they are compiled by Standard & Poor's and the Institute of Corporate Law and Management. As part of the CGS, many factors that directly affect the level of the company's business reputation are assessed. For example, the analysis examines the relationship between shareholders, management, the board of directors and other financial therefore, although these two ratings are not interchangeable, nevertheless, CGS work to improve business reputation. It is known that attempts are being made to create their own database of "undisciplined" counterparties, in particular, the executive authorities of St. Petersburg maintain a register of unscrupulous suppliers taken into account when deciding on the conclusion of government contracts. A similar register is also maintained by the Moscow Government (Decree of the Moscow Government dated October 24, 2006 No. 825-PP "On the register of business reputation of partners of the Moscow Government" as amended on June 15, 2010)

The advisory subspecies of the expert method is "spudded" with might and main by PR companies. As in the rating, experts analyze each component of the business reputation of the company being assessed, but do not make any comparison with other market participants. The study involves the collection, generalization and analysis of expert assessments. The descriptive characteristics of the reputation and image of the company are revealed. But at the same time, qualitative parameters are not translated into quantitative ones, and even more so into financial ones. As a result of such a study, an analytical report appears, which allows you to get a lot of information for managing a company and planning its activities.

The technology-based valuation method of Brand Finance and Interbrand comes from the field of marketing and is based on the notion that reputation is a brand. It refers to the quantitative approach.

According to this model, the calculation of the value of goodwill occurs in two stages. The first one reveals excess returns that have appeared due to the work of goodwill. At the second stage, the result obtained is multiplied by a special coefficient, the method of finding which is the know-how of Brand Finance and Interbrand. But it is known that it is calculated by experts according to such criteria as leadership, internationality, and stability. The method of calculating this coefficient is the weakest side of the method. In addition, according to Elena Kovaleva, it is more fair for companies operating in the retail market. In other words, the marketing origin of the method is felt.

The Russian follower of the methodology was the company V-RATIO. Based on Interbrand and Brand Finance technologies, this company has developed a completely objective method for assessing the value of a brand, which can also be used to assess the value of business reputation.

Determination of excess income received from goodwill:

There is a hypothetical food company that wants to know the value of its goodwill. In 2010, its sales amounted to $500 million. To find how much was received from goodwill, the ratio of sales to capital employed (capital-employed-to-sales ratio) is determined for a specific industry. This coefficient "K" is recognized as natural for this industry, based on the fact that all companies have a "zero" business reputation. For the food industry K=0.32. To generate $500 million in sales, a zero goodwill company needs to raise capital of $160 million:

$500 million x 0.32 = $160 million

Based on the profitability standards existing on the market (for Russian food companies - about 15%), the volume of operating income obtained not at the expense of goodwill is estimated:

$160M x 15% = $24M

But the actual operating income received (recognized from the reporting) amounted to $100 million. Therefore, $76 million was received through the work of the brand. It remains only to deduct taxes from this result.

$100 million - $24 million = $76 million

One of the most important issues in considering the concept of "business reputation" is the question of its measurement. We believe that all methods for assessing business reputation are divided into two groups - methods of quantitative measurement and methods of qualitative assessment (Fig. 2). Below we will take a closer look at each of the methods of the group.

1. Methods based on the quantitative measurement of business reputation:

§ excess profit method;

The excess profit method involves the presentation of goodwill as a source of additional income. According to this technique, it is necessary to directly contrast the level of profitability of the enterprise being evaluated and the level of profitability of competitors in the industry under study, and then capitalize the part that cannot be explained by tangible assets.

Calculations made on the basis of the excess profit method allow the company to earn more profit than if it sold a product that is not a brand. In addition, this method is based on the fact that profit is derived from net adjusted assets, and excess resources are determined from own funds. However, in fact, the raised funds can also contribute to profit.

§ method of excess resources;

This method is a modification of the excess profit method and involves the inclusion of borrowed funds in the assessment.

§ indicators of sales volume

§ indicators of market capitalization;

§ determination of the price of reputation in the event of a merger / acquisition transaction (according to PBU 14/2000 “Accounting for intangible assets”).

In this case, goodwill is assessed as the difference between the price of the acquired enterprise and the value of its assets according to the balance sheet;

§ information on international financial reporting standards (in accordance with IFRS 22 Business Combinations).

This method considers goodwill as the excess of the purchase price of assets over their fair value on the date of the transaction.

Basically, all methods, with the exception of the excess profit method and its modification, are based on the difference between the value of the business as a whole and the value of tangible and intangible assets.

To assess business reputation using quantitative methods, data from the following company documents are required:

Financial statements, including balance sheet and income statement (if possible, for the last 3 years);

Auditor's opinions on the company's financial statements;

List of fixed assets of the company as of the date of the assessment;

Information about all existing assets of the enterprise (real estate, shares of third parties, promissory notes, stocks, patents, licenses, etc.);

Details of the company's receivables;

Information on the presence of subsidiaries and financial statements on them.

Fig.2. Methods for assessing the business reputation of a company

However, it should be noted that quantitative methods have some disadvantages. As we said in paragraph 1.1, many researchers believe that business reputation is evaluated not only through tangible assets that can be calculated, but also includes an intangible and intangible concept. Accordingly, the definition of business reputation only through quantitative indicators will not give a complete picture of the position of the enterprise, and for the competent management of business reputation, it is necessary to apply a comprehensive analysis, which involves taking into account all elements of business reputation, both quantifiable and not measured quantitatively.

2. Methods based on qualitative research:

§ econometric evaluation methods;

§ method of sociological survey;

In foreign practice, companies most often use sociological survey methods to manage their business reputation. This method allows you to evaluate business performance, reliability and openness of the company, the degree of trust on the part of the target audience, identify problem areas and outline actions to improve or further increase goodwill.

As for our study, in accordance with our approach (according to clause 1.1 of this work, business reputation is assessed through a number of blocks), it is necessary:

Determine the quantitative and qualitative indicators corresponding to each selected block and sub-block. To determine quantitative indicators, we will use the company's internal reporting and information available on the Internet.

Since business reputation includes not only tangible assets, but also incalculable intangible assets, the assessment of the business reputation of management companies should be carried out by methods based on qualitative research. Due to the fact that it was not possible for us to interview managers and heads of management companies to assess qualitative parameters using an expert method or a sociological survey method, we searched for all the necessary information on the Internet.

Production plan RUP Newsprint Plant
General information about the enterprise "Newsprint Production Plant" is part of the "Bellesbumprom" concern and is located in the town of Shklov, Mogilev region of the Republic of Belarus...

Economic importance of tourism statistics, history, trends
international tourism global tomsk Tourism as a social phenomenon has a long and rich history dating back centuries. Man throughout his evolution has been characterized by the desire ...

Economic analysis of the financial and economic activities of the enterprise
solvency profitability bankruptcy intensification The effective functioning of enterprises in a market economy largely depends on the validity and timeliness ...