Company Valuation Under IFRS : Interpreting and Forecasting ...

Company valuation under IFRS
Something clearly needs to be done to correct for this when valuing companies.
One approach is to model existing assets and then to assume additional value
added from new investments. This need not take the form of a CFROI analysis,
which aggregates cash flow from existing assets. In many cases they can be
modelled separately. Indeed, CFROI could be seen as a special case (complete
aggregation) of an asset-based company valuation.
It is unlikely to be helpful to model most companies in this way. Separating out
the existing and future assets of Procter and Gamble, for example, would be very
hard. Most of the assets are intangible. How do we separate investments in
building new brands from the marketing costs associated with this year’s sales?
And, as intangible assets are mainly not capitalised, we shall get no help
whatever from looking at notes regarding fixed assets in the accounts, either with
respect to the scale of historical investments, nor with gross and remaining asset
lives.
So in general we shall be thrown back on corporate, accounting based models. Of
course, it would be nice if companies were to provide us with information that
would permit us to adjust fixed assets to fair value, and to accrue fair value
additions and impairments through the profit and loss account. In some sectors of
the equity market we already can.
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