Business valuation of the enterprise Daimler AG

Contents

List of figures

1. Introduction
1.1 Problem and Objective
1.2 Scope of Work

2. Methodology

3. Theoretical background
3.1 Business Valuation
3. .1 Valuation methodologies
3. .1.1 Discounted Cash flow methods
3. .1.1.1 Entity methods
3.1.1.1.2 Equity methods
3.1.1.1.3 Advantages and disadvantages DCF methods
3.1.1.2 Multiples method
3.2 Presentation Daimler AG

4. Valuation of the Company Daimler AG
4.1 Discounted Cash flow method
4.1.1 Entity method
4.1.2 Equity method
4.2 Multiples method
4.3 Summary of the results

5. Discussion

6. Conclusion and outlook

Bibilography

ITM-Checklist

List of figures

Fig. 1: Selected business valuation methods

Fig. 2: DCF methods

Fig. 3: Process of a multiples valuation

Fig. 4: Mostly used multiples

List of tables

Tab. 1: Reasons for business valuations

Tab. 2: Calculation Free Cash flows

Tab. 3: Calculation Flow to equity

Tab. 4: Connection free cash flow and flow to equity

Tab. 5: Calculation Free Cash Flow 2014

Tab. 6: Calculation Free Cash Flows further years

Tab. 7: Calculation Enterprise value

Tab. 8: Results entity method

Tab. 9: Calculation Flow to equity

Tab. 10: Key figures Daimler

Tab. 11: Key figures Peer Group

Tab. 12: Multiples Peer Group

Tab. 13: Business value Daimler

Tab. 14: Key figures P/E ratio

Tab. 15: Key figures CAPE ratio

Tab. 16: Results CAPE and P/E

Tab. 17: Summary of results

List of abbreviations

Abbildung in dieser Leseprobe nicht enthalten

1. Introduction

The valuation of businesses is since decades a theme, which is still up to date and growing. The reason for the high interest regarding the theme is quite simple: If an enterprise is valued, there is a high amount of money involved. Business values are daily business, at the same time they have a high amount of complexity and issues, the raters are confronted with¹. The reason for a business value could be different, starting with management successions and ending with the buy out of an enterprise².

1.1 Problem and Objective

The value of an enterprise is subjective and contents conflicts of interests. On one hand there is the current owner. For him the enterprise has an added value because of the personal background. On the other hand, there is the further buyer of the company, who wants to pay a lower price for the company to minimize the liabilities³. Because of this the value of a business depends on the target and the reason of the valuation, reflecting the motto “The Price is what you pay. Value is what you get.”⁴

The value of the business can be calculated by different ways. In the last years, the amount of valuation methods increased. Currently there are many valuations available, which end in different results⁵. But how is the value of an enterprise defined and calculated? Why is the value of a business needed? And what are the differences between the methods? These questions will be answered in the present assignment. The Objective is to show with the help of the concrete example Daimler AG the process of a business valuation including the calculation of the value of the enterprise.

1.2 Scope of Work

To achieve this objective, the methodology of the present assignment is described in the following chapter first, before the theory of business valuations will be explained. The reasons for a valuation are described and the methods with a focus on Discounted cash flow methods (DCF) and multiples methods are stated. After presenting the company Daimler the methods are applied of Daimler in the fourth chapter, the business value will be calculated with the different methods. The results will be discussed in chapter five, before finally a conclusion and outlook will be given.

2. Methodology

The methodical basis of the present work is a detailed literature search. This is carried out by the help of relevant specialized literature, professional databases and the Internet. The relevant specialized literature is procured with the help of the library of the University of Dortmund. As professional databases the Springerlin k and wiso were used. The Internet serves with the searching machines Google books and Google scholar as a medium to find information. Books in electronic form are covered about the eBook supplier ciando. As key words business value, Discounted cash flow and multiples were used.

3. Theoretical background

In the following chapter the theoretical background regarding business valuations is described, before the enterprise Daimler is introduced.

3.1 Business Valuation

Business valuations are assessments. Assessments are finished processes, which defines a value for a certain constant, mostly in a form of a monetary value. In case of an enterprise assessment the assessment is a process, where the value of the enterprise is identified⁶. Enterprises are economic-financial and juridical organisation units, which produce output with the help of factors like work, operating capital and commodities⁷. The value of the enterprise is the monetary value, the buyer pays or the vendor gets for the enterprise⁸. Business valuations refer to the future, based on the benefit and consider the risks⁹.

An assessment of a business could be necessary in different cases. Peemöller differentiates between changes in different life cycle phases of an enterprise, different regulations inside and outside the enterprise and changes in the interests of shareholder as shown in Tab. 1.

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Tab. 1: Reasons for business valuations¹⁰

A valuation could be for example necessary, if two enterprises are merged or if a shareholder leaves the enterprise¹¹.

The Institute of Public Auditors in Germany (IDW) differentiates between the two reasons for a business valuation: Voluntary and obligatory valuations. Voluntary situations could be reasons like a Management Buy out or sale of an enterprise, obligatory reasons are Purchase price allocations, impairment tests or squeeze outs ¹².

Voigt et al.¹³ systematize the reasons for valuating an enterprise by legal background. The first aspect is a change in the distribution of property. Possible occasions are the sale of an enterprise, the Going public of an enterprise, the accession, resignation or compensation of a partner. The second aspect is a modification without a change of the distribution of property. Examples are the verification of the creditworthiness, capital reorganization or the Profit-sharing of employees. The third reason is because of management aspects, ratings and corporate governance. A valuation of an enterprise could be influence the operational and strategical management control, could be needed for the fair value approach regarding earnings reserves in accordance with the IFRS and for ratings. The fourth reason Voigt et al. enumerate, are legal disputes¹⁴.

3.1.1 Valuation methodologies

The quantity of valuation methodologies increases the last years. For different purposes of valuation different methodologies are needed¹⁵. Besides, the scientific knowledge is developing. Up to 1960 the so called objective business valuation was state of the art. The objective business valuation is a valuation methodology, which is detached from subjective opinions or the impact of stakeholders. It reflects the potential of success for everyone, not for a specific group. At the same time this type of valuation focuses on the present and the past. To define the value of a business, the valuation occurs with the help of the intrinsic value method and the capitalised earnings method. These methodologies are not relevant for the present assignment, that’s why they are not described in the following. The reason, why the objective methodologies was the most used method, was, that objectivity was an expression of scientific and verifiable way of working¹⁶.

The subjective business valuation implemented the individual ideas and visions of the interested parties in the valuation of an enterprise. Since 1960 these valuation methodologies are used more and more. The basic of these methodologies are the idea, that business values depend on subjective perceptions and these perceptions have to be implemented in the valuation of a business. The specific value depends on the interested parties¹⁷.

Because of the continuing discussion, which approach is the right one, the functional business valuation was developed in the 1970s. The approach contents parts of both prior approaches. The business hasn’t only one value per interested party, but could have different values for the same interested party, depending on the task of the valuation¹⁸.

Matschke et al. distinguishes the current business valuations methods in individual, combined and total valuation methods as shown in Fig. 1.¹⁹

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Fig. 1: Selected business valuation methods²⁰

The individual valuation methods identify the business value with the help of the price of individual company shares (e.g. stocks) or the summarized components of an enterprise. Depending on the considered components the liquidation value or the asset value is calculated²¹. The basis for total valuation methods are the cash flows of an enterprise, respecting balance-sheeted and non-balance-sheeted business values. Methodologies using the cash flows of an enterprise are the capitalised earnings value method and the discounted cash flow method (DCF)²². Combined valuation methods identify the business value by combining the individual and total business valuation method²³. For the present assignment the total evaluation methods DCF and multiples are relevant, described in the following.

3.1.1.1 Discounted Cash flow methods

DCF methods depend on the future as they are forward-looking methods²⁴. The value of the enterprise is identified by using the cash flows of an enterprise. Cash flows are the net inflows of liquidity during a defined business period²⁵. The idea behind this methods are, that the true value of a business is based on the free cash flows over years plus a terminal value, focusing on cash and not on profits. The DCF methods show, how much cash an investor received for his invested money. It implements the factors risk and future. For the factor future different assumptions relating to the future have to be made²⁶. The DCF methods are divided in methods of gross and net accounting methods shown in Fig. 2²⁷.

Fig. 2: DCF methods²⁸

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3.1.1.1.1 Entity methods

The gross accounting methods are divided in two steps: The first step includes the determination of the market value of the total capital, while the second step includes the determination of the market value of the equity. The equity is calculated with the help of the market value of the borrowed funds subtracted from the market value of the total capital. The basis of the gross accounting methods are the free cash flows. They reflect the earned liquids ressources reflecting net income and changes in current assets, depreciations and provisions²⁹. For the present assignment, the gross accounting method Weighted Average Cost of Capital (WACC) is relevant.

The WACC approach is divided in the Free Cash Flow (FCF) and Total Cash Flow (TCF) approach. The first one is described in the following as only relevant for the assignment.

The FCF approach is the most time used method of the gross accounting methods. The basis of this approach is to identify the market value of the total capital. This happens with the help of the future cash flows, discounted by the (WACC. The WACC reflects the demand of return of inside and outside creditors. The WACC is needed, because inside and outside creditors have different demands of return³⁰.

To get the business value, first the cash flows have to be determined. To calculate the needed cash flows, an accounting for planning and control has to be defined with the constants shown in Tab. 2.

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Tab. 2: Calculation Free Cash flows ³¹

By subtracting the tax shield, the free cash flow depends on an enterprise, which is financed only internally. The working capital contents demands and stocks of supply and performance, payments on accounts excluding liabilities regarding deliveries and payments received. The Free cash flows are defined for 5 to 10 years precisely³². In the next step the WACC has to be calculated. The formula to calculate the WACC is shown in the following:

Abbildung in dieser Leseprobe nicht enthalten³³

with

i: risk based expected return of borrowed capital creditors s: Company tax rate

BCMV: Market value borrowed capital ECMV: Market value equity capital TCMV: Market value total capital

The formula shows, that the WACC is calculated by the weighted equity capital costs and the weighted borrowed capital costs. The equity capital costs depend on sector-specific and capital market focused expectations, the investor has. The problem is, that the market

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¹ See Schacht et al. 2009, p. 5.

² See Schütte-Biastoch 2011, p. 1.

³ See Zwirner 2012, p. 1

⁴ See Verlag für die Deutsche Wirtschaft AG 2012.

⁵ See Schacht et al. 2009, p. 5.

⁶ See Matschke et al. 2013, p. 3f.

⁷ See Schubert 2005, p. 378.

⁸ See Voigt et al. 2005, p. 14.

⁹ See Peemöller 2015, p. 25.

¹⁰ See Peemöller 2015, p. 20

¹¹ See Pemöller 2015, p.19.

¹² See Pemöller 2015, p. 20.

¹³ See Voigt et al. 2005, p. 17.

¹⁴ See Voigt et al. 2005, p. 18f.

¹⁵ See Nölle 2009, p. 18.

¹⁶ See Matschke et al. 2013, p. 14f.

¹⁷ See Matschke et al. 2013, p. 15.

¹⁸ See Matschke et al. 2013, p. 15f.

¹⁹ See Matschke et al. 2013, p. 123.

²⁰ See Matschke et al. 2013, p. 123.

²¹ See Matschke et al. 2013, p. 123.

²² See Lattwein 2002, p. 130.

²³ See Matschke et al. 2013, p.123

²⁴ See Beatge et al. 2015, p. 359.

²⁵ See Voigt et al. 205, p. 37.

²⁶ See Hayes 2009, p. 86f.

²⁷ See Baetge et al. 2015, p. 359f.

²⁸ See Baetge et al. 2012, p. 360.

²⁹ See Hessischer Rundfunk 2016.

³⁰ See Gräfer et al. 2000, p. 672

³¹ See Baetge et al. 2015, p. 373.

³² See Gräfer et al. 2000, p. 673.

³³ See Baetge et al. 2015, p. 363.