Why/ Business Valuation
Urgent Call to Action:
New Risk Dimensions in Business Valuation Demand Immediate Response
Moreover, the static FAUB recommendation needs to be urgently replaced by a more dynamic FAUB process.
We are at a turning point in business valuation. Recent developments have fundamentally changed the economic landscape and corporate risks. However, current valuation practices are lagging far behind this reality. It is high time we addressed this challenge and made the necessary adjustments to avoid misvaluations and inadequate risk assessments.
New risk dimensions require new approaches:
- Global competitive risk: Companies today face unprecedented market volatility. Innovations and technological disruptions driven by global players put manufacturing companies under immense pressure. Margin erosion and production shifts abroad are just the tip of the iceberg. These developments must be reflected in an adjusted risk premium. Industrial companies currently face a competitive disadvantage of between 23-40%. 85% of this is caused by our high labor costs and only 5% by the energy cost difference. All this data is now available at the push of a button for 3,300 economic regions . > Video
- Methodological weaknesses as a risk: The lack of real corporate controlling, the absence of a critical and legally mandated early warning and monitoring system, insufficient calculation accuracy, and a lack of competitive analyses have theoretically already been excluded, leading to many companies being unable to recognize and effectively manage their risks in a timely manner. Furthermore, a company has virtually no future if purchasing and sales do not rely on 'dynamic cost management' as a mandatory basis for success. These methodological deficiencies are not only entrepreneurial weaknesses but also severe insolvency risks. > Video
- Cost driver capacity utilization: The hitherto insufficient, if not entirely absent, consideration of capacity utilization effects in corporate management and cost accounting poses a significant risk to the competitiveness of industrial companies. The failure to consider capacity utilization risks in valuations reflects a detachment from reality that is no longer sustainable given the high level of corporate risk. > Video
Impact on business valuation: These risk dimensions necessitate a higher capitalization rate to accurately reflect the increased uncertainties and company-specific risks. Without adjustments, valuation methods will fail to meet the heightened requirements, and both companies and investors risk making critical strategic missteps.
Time to act: All business valuations must be reviewed and adjusted promptly!
If we ignore these issues, we risk not only overvaluing businesses but also eroding trust in valuation standards. We demand an immediate review and adjustment of existing methods to reflect the new reality. We are ready to support this process with our expertise and commitment and invite you to actively participate in this essential discussion. Due to the identified significant weaknesses and errors in traditional cost and performance accounting, new methods and enabling IT tools had to be developed.
