Swiss experts basically do not determine the value of a company any differently than their foreign colleagues. They assess the substance and earning power or choose between a past- or more future-oriented view. Nevertheless, Switzerland has an interesting variant for valuing companies in the form of the Praktiker method.
Who is not familiar with the situation: A prospective buyer prepares an offer for a bidding process and carefully determines the value of the object of purchase. In his opinion, his figure fairly represents the value. He is not badly surprised when the seller abruptly rejects the proposal: The offer neglects important items on the balance sheet.
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Different interests, different assessment methods
Every evaluation is based on the premises and interests of those involved. If you ignore this, you are not always talking about the same thing. As a result, negotiations drag on or fail. Salespeople, for example, often insist on the assets in the company. They proudly point to machines, modern production facilities or patents ? to the business itself. The buyer, on the other hand, sees the earning power first. They pay today’s purchase price with tomorrow’s earnings. The assets are therefore not an end in themselves, but a means to profitability.
Swiss compromise: net asset value and capitalised earnings value in one method
This tension can be softened if the criteria of substance and yield are methodically combined in an evaluation. evaluation. This is why the practitioner method, which is widely used in Switzerland, follows this approach. practitioner method, which is widely used in Switzerland, follows this approach. It is “practical”, comprehensible, easy to calculate and takes and takes substance and income into account in a weighted manner.
The Practitioner value corresponds to one third of the weighted sum of both values. The net asset value is calculated once and the average income value twice. Variants are permissible and take individual characteristics into account. Thus, in the end, there is not one “correct” figure, but ranges. For example, if you want to emphasise the earning power, the capitalised earnings value is calculated three times. Those who foresee a dynamic development use actual and target figures for the capitalised earnings value. Higher or lower capitalisation rates allow further gradations.
Conclusion: Why the practitioner method is popular in Switzerland:
- The method is understandable and easy to calculate. It leaves room for variations at any time.
- In the absence of an officially prescribed method, Swiss authorities regularly use it when valuing companies. It is therefore credible.
- It is inclusive and capable of compromise by appreciating multiple evaluation criteria. This facilitates (price) negotiations. Everyone feels addressed; no argument dominates one-sidedly.
- It takes on board the sensitivities of smaller companies with assets. Their owners struggle to understand why their substance is not explicitly included in the calculation.
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