When state-owned enterprises are sold, how should their values 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?
The value should be established by competitive bidding. Accountants of the various bidders will consider future earnings potential and the value of assets in place. Past earning power is not as important, unless it is a stable "cash cow" business.
All three are important. The value should be established by competitive bidding, but the enterprise being aold also needs a clear idea of what is worth before accepting an offer. (Most will ask for more). Accountants of the various bidders will consider future earnings potential and the value of assets in place above all. Past earning power is not as important, unless it is a stable "cash cow" business.
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When state-owned enterprises are being sold, determining their value can be a complex task. There are different approaches to establishing the value, and it is common to consider multiple factors. Three main aspects that are often taken into account are the cost of assets in place, the past earning power of the enterprise, and the future earning potential in a competitive economy.
One common method to establish the value is through competitive bidding. Potential buyers will make offers based on their perception of the enterprise's value. The bidding process allows for the market to determine the price, as interested parties compete with each other to acquire the enterprise. This approach brings in multiple perspectives and helps reveal the value that buyers perceive in the business.
When evaluating the value, accountants representing different bidders will usually consider the future earning potential of the enterprise. This includes analyzing factors such as the market conditions, growth opportunities, and potential risks. By assessing the future prospects of the business, buyers can estimate the value that they believe the enterprise will generate in the long run.
Additionally, the value of the assets in place is also an important consideration. This involves determining the value of physical assets, real estate, intellectual property, and other resources that the enterprise owns. While the assets alone might not fully capture the value of the business, their existence and condition can significantly influence the enterprise's overall worth.
The past earning power of the enterprise can also be taken into account, particularly if the business has consistently generated stable and significant profits. In such cases, the historical financial performance can provide insights into the reliability and predictability of the enterprise's earnings. However, it is important to note that past earnings should not be the sole determinant of value, particularly in industries that are subject to rapid changes and evolving market dynamics.
In conclusion, when determining the value of state-owned enterprises being sold, a combination of factors should be considered. Competitive bidding provides a market-driven approach, while accountants of potential buyers evaluate the future earning potential and the value of assets in place. Past earning power can be a factor but should not be relied upon exclusively, especially in industries with high uncertainty and market volatility.