Earned value

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The earnings value is an economic key figure that is calculated in company valuation , real estate , investments and movables by capitalizing the generated or future income as the present value .

General

While in the cost approach the real value on the stock size of a substance value builds up, the oriented earnings method at the flow amount of the income value. The earnings value is particularly important in the banking and real estate market . When lending for income-generating objects ( commercial properties , apartment buildings , profits of a company , marginal returns of an investment or income of an aircraft ) plays under the special financing ( asset finance , project finance , structured finance ) the valuation of the income value a special role. Formally, it is defined as the sum of the discounted future, sustainably achievable and customary market income from a property.

detection

The basis is the profit or income generated by a loan object per year, from which one-off special effects must be eliminated. The adjusted profit or income forms the basis for the debt servicing of the granted loan. As part of the loan documents is the banks , the amount and sustainability of these revenues prove ( Mietaufstellungen , financial statements , investment plans ). In the later loan agreement , covenants with debt ratios such as debt service coverage ratio , indebtedness ratio or interest burden ratio ensure that an appropriate credit risk is maintained . When determining the earnings value, the management costs that reduce the earnings value must be taken into account ( § 18 ImmoWertV ):

   Rohertrag
   - Bewirtschaftungskosten
   = Reinertrag

This net income (net income value) must first be determined on an annual basis, it shall then be for the repayment term for capital value cumulated ( § 20 ImmoWertV). The net present value is the amount that would alternatively have to be invested in the capital market in order to achieve the same income as from the property.

If the duration is limited and the profit per year varies, the earnings value results from the acquisition costs , the annual profit and the capitalization interest rate over the period in years:

With unlimited duration and constant profit per year, the income value is calculated as the transition to the pension formula as follows:

The land value and the yield value of the building result in the yield value of a built-up property ( Section 185 (3 ) BewG ).

Earned value in practice

Only the income value is considered as the mortgage lending value of income-generating lending objects such as commercial real estate or apartment buildings . It is used in the collateral valuation to determine the mortgage lending value. The main influencing factor on the value of a commercial property is the sustainably achievable annual net rent , taking into account administrative costs , operating costs , maintenance and the risk of loss of rent ( Section 187 BewG), whereby 12 to 13 times the annual net rent is viewed as potential sales proceeds as a conservative multiplier .

The earnings value of an investment is the present value of the future payment surpluses to be expected from the investment. If the probability- weighted earnings value is greater than the funds invested ( positive probability-weighted earnings value ), the investment makes economic sense. The earnings value is best suited for the valuation of entire companies, as it does justice to the idea that dominates in theory and practice that the future earnings resulting from the company's performance essentially determine this earnings value. The reference value is the annual surplus corrected for the extraordinary result . The income value is used as a basis in tax law for land when determining the unit value . The tax law unit value is basically a schematic income value.

Earning value and loan

The income value is used as part of the collateral valuation to determine the lending value for objects to be lent that generate a profit or income. In the case of real estate, this includes commercial properties and rented apartment buildings. In the case of movables, vehicle fleets , ships or aircraft belong to the income value-oriented objects in the context of object financing . If corporate acquisitions from non-banks are to be co-financed by credit institutions , an earnings value can also be determined here as the basis for the mortgage lending value.

In § 3 BelWertV , the mortgage lending value is defined as the value which, based on experience , can probably be achieved in the event of a sale, regardless of temporary, for example cyclical fluctuations in value in the relevant market and with the exclusion of speculative elements during the entire duration of the loan . The earnings value method with the earnings value ( § 9 ff. BelWertV) as a value convention for the mortgage lending value is to be used when determining the value.

Differences between earnings value and discounted cash flow

Both methods assume that the value of a property can be derived from the future income surpluses. Both have the net present value method as a mathematical basis . The basic difference between the two methods is that the return value from future profits or income is calculated as the discounted cash flow (DCF) from the present value of cash flows ( english operating free cash flow , free cash flow from operations) recruited . Further differences arise from whether it is a question of surpluses that are distributed to equity capital or debt capital providers and how they are capitalized. An individual alternative return is used as the discount rate for the earnings value, and for the DCF a weighted cost of capital rate based on the return expectations of all investors. While the earnings value captures the systematic and unsystematic risk, the DCF only takes the systematic risk into account. In the case of identical assumptions, both methods arrive at the same results despite the differences because they are based on a present value calculation.

See also

Individual evidence

  1. Wolfgang Lück (Ed.), Lexikon der Betriebswirtschaft , 1983, p. 357
  2. Michael Demuth / Henrik Bustorf / Olaf Thiel, Investment Funds: Products - Facts - Strategies , 1995, p. 94
  3. Martin Tasma, leveraged buyout and bankruptcy protection , 2012, p 64
  4. Klaus Henselmann, History of Company Valuation, in: Volker H. Peemüller, Practical Guide to Company Valuation, 2012, p. 108
  5. ^ Heinrich Herzog, Basics and Method of the Agricultural Unit Assessment , in: Handbuch der Landwirtschaft, Volume 5, 1954, pp. 734 ff.
  6. Martin Jonas, company valuation: on the application of the discounted cash flow method in Germany , in: BFuP , 1995, p. 85
  7. ^ Peter Seppelfricke , Handbook Share and Company Valuation , 2005, p. 38
  8. Wolfgang Ballwieser, Connections of Earned Value and Discounted Cash Flow Methods , in: Volker H. Peemöller (Ed.), Praxishandbuch der Unternehmensversicherung, 2005, p. 363