PPP Business Plan 09 03

value of the company
In recent years the recourse to the hypothesis of unlimited duration of income generation has gradually become more
widespread (with n ∞), because beyond a certain number of years, the value difference between definite and indefinite rent
becomes negligible. The formula for the evaluation of companies for an unlimited period of income over time is as follows:
W = R / i
Replacing the expected income with a net cash flow, W can be determined using the financial methods.
As per the case of hotel companies, profitability may refer to either the specific management (income from overnight stays,
from catering, from the use of the meeting rooms, catering...) or the quota generated within a given period of time, from
the appreciation of the value of the real estate component.
The equity-based method
According to the equity-based method, the value of a company is determined by assigning a value of individual assets and
liabilities registered in the balance sheet, at the historical cost. The sum of the values that have been analytically attributed
to assets and liabilities show an asset value called “adjusted net assets”.
In addition to the “simple” method there are also “complex” equity methods, consisting of the value of intangible assets,
including those that have not been accounted for, registered with or - in some cases - without market value. The theoretically
proposed formula is as follows:
W = K + (K’ - t)
where:
W = market value of the company;
K = shareholders’ equity (equity book value);
K’ = adjustments made to shareholders’ equity;
K + (K’ - t) = Adjusted net assets;
t = (possible) tax effects of the adjustments.
As per the evaluation of the hotel companies, this method appears to be of little use, because it does not adequately valorize
profitability.
mixed methods of equity-income
These methods - mediating between the asset and income methods - are defined mixed. The application of these methods is particularly
suitable for the assessment of hotel companies, because of the significant equity component that is typical of such cases
– obviously not neglecting the income component, either.
The most basic mixed method is the so-called method of average value, which takes into account the average of the asset value (K)
and the income value with unlimited capitalization (R/i):
W = 1⁄2 (R/i + K)
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