1)When state-owned enterprises are sold, how should their calue be established? Should the value be based on the cost of the assets in place, the past earning power of the enterprise, or the future earning potential in a competitive economy?

2) How can future earning capacity of privatized enterprises be estimated?

1) When determining the value of state-owned enterprises (SOEs) that are being sold, various approaches can be considered. The choice of valuation method depends on the specific circumstances and objectives of the sale. Here are a few common methods:

- Asset-based approach: This method entails valuing the SOE based on the cost of its assets. It involves estimating the current value of the tangible and intangible assets owned by the enterprise, such as land, buildings, equipment, and intellectual property. This approach is useful when the assets are expected to continue generating stable cash flows or have significant market value.

- Earnings-based approach: This method involves valuing the SOE based on its past or projected earning power. The earnings-based approach considers historical financial data and future earnings projections to determine the value. The valuation may be calculated using metrics like price-to-earnings ratio, discounted cash flow analysis, or earnings multiples. This approach focuses on the SOE's ability to generate future profits.

- Market-based approach: This method involves comparing the SOE with similar companies in the market that have been recently sold or are publicly traded. The valuation is derived from the prices paid for comparable enterprises, taking into account factors like industry trends, competitive positioning, growth prospects, and financial performance. This approach relies on market dynamics to establish the SOE's worth.

Determining which valuation approach to use can involve a combination of factors, including the specific objectives of the sale, the industry in which the SOE operates, the competitive landscape, and the availability and reliability of financial data.

2) Estimating the future earning capacity of privatized enterprises involves a forward-looking analysis that considers various factors impacting the potential profitability of the business. Here are a few key considerations:

- Market analysis: Understanding the market dynamics and competitive landscape is crucial. Factors such as industry growth rates, market size, market share potential, and competitive forces need to be assessed. This analysis helps estimate the overall growth prospects and revenue potential of the enterprise.

- Financial projections: Developing financial projections is essential to estimate future earnings. This involves forecasting expected revenues, costs, and profitability over a specific period, usually based on historical data, market analysis, and industry trends. The projections should account for possible changes in market conditions and strategic initiatives.

- Management capabilities: Assessing the capabilities and track record of the management team is crucial. Competent leadership is essential for driving growth and efficiently managing the enterprise, which directly affects its earning capacity.

- Regulatory and political environment: Evaluating the regulatory landscape and political stability is important, as changes in regulations or government policies can impact the profitability of privatized enterprises. Political and legal risks need to be factored into the estimation of future earning capacity.

- Technological advancements: Considering the impact of technology on the industry and the enterprise is critical. Technological disruptions can significantly alter the competitive landscape and the earning potential of privatized enterprises.

It is worth noting that estimating future earning capacity involves a level of uncertainty and requires careful analysis. It is recommended to employ multiple methodologies and scenarios to account for various potential outcomes.