Improved profitability

The improved profitability method assumes that an average normalized profit is a good proxy for the forecast period.

Based on a target solvency, it is determined whether the company is over- or under-solvent.

In the event of excess solvency, the excess equity is borrowed via debt.

The additional interest charges on this additional debt are adjusted to the average profit.

By dividing the corrected average profit by the cost of equity (Kel), the value of equity before solvency correction is determined. The value of the equity is determined by adding the surplus (deficit) of the equity.

To arrive at the operational enterprise value, the market value of debt is added to the value of equity, and excess cash and the market value of non-operational assets are deducted.

This valuation method is one of the 6 valuation methods in the Valid Value model.