Valuer 1.0 Manual 

ABOUT THE PRODUCT

Welcome to the business valuation tool 'Valuer' available both in PC and Palm OS versions which interact together via specially installed conduits.

There are no doubt lots of reasons why businesses change hands. Buyers and sellers will ask many questions on past performance, location, synergy expected, etc. It is our contention that the two most important financial questions are:

(1) What is the future expected return, and 
(2) What is the risk involved.

'Valuer' analyses these two components to identify the parameters for negotiation. By this we mean the minimum a seller should expect for the business and the maximum a seller should expect to pay.

The future expected return is calculated using the more realistic 'Discounted Cash Flow' method. The process allows a degree of subjectivity in the analysis and we ask that you therefore be practical with your predictions.

'Valuer' uses a questionnaire to assess the risk involved and incorporate this in the final figures by way of a gamma factor added to the Weighted Average Cost of Capital (WACC) used in calculating discount factors.

You can also use 'Valuer' as a forecasting tool, as a means of disciplining yourselves and for setting organizational targets (i.e. sales targets, gross profit, maximum cost, net profit, asset value, etc.). This product should also assist you in the creation of a business plan for acquiring additional finance. 

Whatever your primary uses of the Business Valuation Tool - Valuer, we hope that you will achieve real benefit from it. This is the fundamental reason why the product was designed.

Throughout the whole process you will find available an 'on-line' help facility which is accessible by pressing the F1 key in the PC version and in "info-discs" in the upper right data entry screens on Palm OS versions. Enjoy!

ABOUT THE COMPANY

Performance Tools Ltd is an organization focused on solutions for the small to medium sized firm. This product is one of a range of computer assisted self-help business tools designed to assist management effort with the aim of achieving enhanced overall performance.

If you would like to receive details of the rest of the product range, and/or seek individual consultancy advice please write to:

				Performance Tools Ltd
				Lower Court
				Staverton
				Cheltenham
				Gloucestershire
				GL51 0TW
				ENGLAND

or visit our web site at www.performancetools.com

INSTALLATION INSTRUCTIONS

The ZIP file contains the following files:

1. valuer.prc:  the Valuer program
2. ReadMe.txt:  this document

Intall valuer.prc by placing it in your palm/username/install directory and HotSynch your device.

Open Valuer by tapping its icon.  If you have your registration code, select "Register" and enter it.  If not, select "Remind Me Later" and you will be able to use the program for one week for trial purposes.  Reminders to register will appear occasionally.


Follow the instructions below for using Valuer (more complete explanations can be found at www.performancetools.com).

ECONOMIC ANALYSIS

All Businesses are affected by the economic climate in their country. This situation will be generally outside the control of management, but will have a major impact on the prosperity of most enterprises. The questions are arranged with their corresponding list of possible answers. You need only to click on the box, which represents the current situation. Questions on the strength of your currency need only to be answered by those company's that directly import and/or export raw materials and/or finished goods.  

You can find the answers to most, or all, of the questions concerning interest, inflation and unemployment levels from the pages of the financial press. The questions on exchange rate are relevant, as a strong pound will mean exports are expensive relative to competitors in other low currency value countries and vise versa in respect to imports. 

Each answer has a specific weighting attached to it and the computer will automatically calculate the individual and combined score. When this section is completed, its score will be added to answers of the sections on the industry and the market to produce an overall attracts ability score of the investment.

N.B. If you inadvertently answer the import/export questions and wish to cancel this you can either click slowly again on the answer to cancel or answer average to currency strength when there will be no net score from these two questions.

INDUSTRY

In this section we will look at the general conditions prevalent in the industry the business operates within. Like the last section you only need to click on the relevant answer to complete the section and like the last, each question carries a weighting. Unlike the last section however, you need to answer all the questions.

The life stage of the industry denotes its age, which will determine its competitive makeup. An embryonic industry has few competitors, low initial demand and relatively high profit potential. During the growth stage new providers are attracted by the increase in demand. A mature industry has many competitors, some pursuing (and achieving) cost leadership which usually means high market share, and others operating in niches. A declining industry means a substitute has attracted buyers away from the industry and/or new technology has rendered the products obsolete. 

When completed, the system will attach an overall industry attract ability score and add this to the score of the previous section. At the end of this stage an overall investment attract ability rating will be awarded to the business.

LOCAL MARKET

When answering this final section of the first stage of the valuation process, you should be looking at the local position. To find your market share you will need to add up the turnover of all operators within your catchments area and divide your turnover by the overall market turnover. For instance, if the overall market turnover is 10 million and your turnover is 2 million, you have a market share of 20% (2 million divided by 10 million multiplied by 100 to find a percentage). You will then have to carry out the same calculation for each of the other competitors you have identified to see if your share of the local market is high, medium or large and then click on the relevant box. 

The question on profit margin is included to identify those organizations that have pursued successful strategies, which has enabled them to achieve higher profit margins than their competitors. This could be due to better location, successful marketing, good cost management, good internal control, or a host of others.

ATTRACT ABILITY SCORE

Your answers to all the questions have a particular weighting attached to them and each 'section' score is bought forward to this point. Here is where the complicated (hidden) mathematics have calculated an overall attract ability rating to the unique investment opportunity. This rating will form part of the discount factor (the gamma factor) when added to the organization's weighted average cost of capital (WACC).

DATA ENTRY

This is where we ask you to input details about your business. The boxes hold your answers and are used as the basis for this analysis. Be realistic about 'expected increase/decrease'. You can use your historical data to help you here by calculating average rates of increase/decrease.

The 'Year' will automatically default to the computer's calendar year, which should always be the present. You can change this date by clicking in the box, deleting the default date and inputting your new year.

Corporation tax rate has been set at 20%. If you are subjected to a different rate, follow the same instructions as 'Year' to change the rate.

To move from one box to the next tap the screen at the entry point and enter whatever information is required.  All data other than percentages are entered in thousands, rounded up or down as necessary.  For instance, 800 = 1, 5000 = 5, 350,000 = 350, 5,600,600 = 5601.
 
When you have input all required data touch the 'Next' Button. This will move you to the next part of the process 'Net Income'.

NET INCOME

This screen shows the computer calculation based on your previous screen input. To change any of the figures to reflect intuitive increase/decrease, click on the relevant box and input your figures.

When considering the changes you wish to make you should consider the wider picture. Do not just rely on historical data. You should consider the external business environment such as the general state of the economy, what your competitors are doing, technology, consumer trends, etc.

When you have completed this screen touch the 'Next' Button to reveal the next step.

BOOK VALUE FORECAST (two screens)

Like the Previous screen the computer has calculated the annual figures based on your increase/decrease predictions. As before you can change the amounts to reflect your personal assumptions, keeping in mind the correlation between assets/liabilities and net income.

N.B. If you change the figure for Cash, this change will automatically be reflected in the Cash figure for subsequent years.

The book value for the fifth year will be carried forward automatically to be used as the 

'Continuing Value' on the 'Valuation' screens.

You can use this screen remotely as an individual targeting tool to achieve an asset/liability ratio your organization would feel comfortable with.

When you have completed this screen touch the 'Next' Button to reveal the next step.

WEIGHTED AVERAGE COST OF CAPITAL (W.A.C.C)

This screen is used to calculate your organizations average cost of capital weighted by the percentage. The result is used to determine the discount factor in the next stage Valuation. The first box asks you to input the number of shares you have issued (Note:  format here is also in thousands rounded up or down so that 0-1499 = 1, 1500-2499 = 2, 25000=25).  You are then asked for the face value of each share (normally one dollar). If you have not issued shares, because you are a sole trader or a partnership, you should use the initial amount of capital you injected at the commencement of the business.

The next four boxes ask for details of loans the organization has obtained and the relevant interest rates, which apply. You could combine all loans into one and use only line two or, if you wish, as multiple loans may have different interest rates, segregate them accordingly.

In the box 'Returns to shareholders' you would input the required rate of dividend you pay. If you do not have a figure you can either, input the 'risk-free' (Government bond) rate if known plus a risk premium, or an average return of 20 %.

The Box ' + Gamma of - ' defaults to 8.5 % and is added to the WACC calculated to derive a final figure. This extra factor added on is due to the risk involved in accurately predicting figures 5 years into the future. It is calculated in the range 2 to 15 from answers supplied to the questionnaire.

Once these figures have been entered the computer will automatically calculate your average cost of capital. This rate is specific to your company and it is suggested that if you are selling your company you must expect the buyer to use a different (sometimes higher) figure (which would lower the value of the company slightly).

YOU HAVE NOW COME TO THE END OF YOUR CONTRIBUTION TO THE PROCESS. WHEN YOU TOUCH THE 'NEXT' BUTTON THE COMPUTER WILL HAVE CALCULATED THE VALUE OF YOUR ENTERPRISE.

VALUATION!

This screen shows the computer calculation based on your previous screen input. To change any of the figures to reflect intuitive increase/decrease, click on the relevant box and input your figures.

When considering the changes you wish to make you should consider the wider picture. Do not just rely on historical data. You should consider the external business environment such as the general state of the economy, what your competitors are doing, technology, consumer trends, etc.

When you have completed this screen touch the 'Next' Button to reveal the next step.

RECOMMENDATIONS

Based on the results of your calculations, Valuer will make recommendations for increasing the value of your business.

RECALCULATION

When you enter details on the 'Data Entry' screen and then click on 'Next' or Click on the 'Net Income' tab, the computer will automatically calculate the 'Net Income' and 'Book Value' figures. It is possible to change these calculated figures by clicking on the field you wish to change and entering a new value.

If you go back to the 'Data Entry' screen and amend the figures here then the computer will recalculate the figures on the 'Net Income' and 'Book Value' screens.

This means that any revisions to figures on these two screens will have to be re-input.



CREDITS

PC System designed and built by: John Welford-Costelloe and Richard Chantry
Palm System by:  KCK Technologies (www.kck.ru)


DISCLAIMER

As the process relies on the reliability of user input, the producers can accept no claims for damages arising out of future conflict where non-authentication of data is apparent.

Valuer is(C) by PerformanceTools 1999.  You can find information and updates on at www.performancetools.com and www.palmgear.com. 

LICENSE

This license agreement between PerformanceTools and the user concerning the use of Valuer ("program") in its Shareware version and its registered version.

1.  The user obtains through this license by PerformanceTools the non-exclusive right to install and use this program on his or her Palm OS computer. The program remains the sole property of PerformanceTools.  The user further obtains the right to make a back-up copy by means of the HotSync feature.

2.  The user may distribute the Shareware version of this program or copies 
thereof. The Shareware version may be published on the Internet or on software collections (on CDs etc.). Each distribution must contain these provisions and the above copyright notice. Except for publishing on software collections the distribution of this program has to be free of charge. The program name or the name of PerformanceTools shall not be used for promotional purposes without prior written consent of PerformanceTools. The program may not be modified or tampered with in any way.

3.  THIS SOFTWARE IS PROVIDED BY PerformanceTools AS IS AND ANY EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE ARE DISCLAIMED. IN NO EVENT SHALL PERFORMANCETOOLS BE LIABLE FOR ANY DIRECT, INDIRECT, INCIDENTAL, SPECIAL, EXEMPLARY, OR CONSEQUENTIAL DAMAGES (INCLUDING, BUT NOT LIMITED TO, PROCUREMENT OF SUBSTITUTE GOODS OR SERVICES; LOSS OF USE, DATA, OR PROFITS; OR BUSINESS INTERRUPTION) HOWEVER CAUSED AND ON ANY THEORY OF LIABILITY, WHETHER IN CONTRACT, STRICT LIABILITY, OR TORT (INCLUDING NEGLIGENCE OR OTHERWISE) ARISING IN ANY WAY OUT OF THE USE OF THIS SOFTWARE, EVEN IF ADVISED OF THE POSSIBILITY OF SUCH DAMAGE.

4.  For regular use the program has to be registered according to the general rules about Shareware. Registration is made by payment of the registration fee according to the program instructions. After registration the user receives a key that entitles him to unrestricted use of the program according to this License. Registration further entitles the user to get support by PerformanceTools via email and free upgrades of this program.

5.  The user shall in no way make copies of the registered version of this program, except such as coming under  1. The user shall in no way resell or lend the registered program or copies thereof to third persons. The registered program may not be made available to third persons.

6.  In the event that any provision of this Agreement should be or become invalid or if there is a gap in the Agreement, the validity of the other provisions shall not be affected. In lieu of the invalid provision or in order to complete the Agreement, a reasonable provision shall be effective approaching to what parties would have agreed upon if they had considered that issue.

7.  This Agreement shall be governed and construed in accordance with British law as it applies to British citizens and the parties hereby agree to submit to the exclusive jurisdiction of the courts of Great Britain. The place of proceeding will be London.

8. This software program is protected by International copyright law.

3Com, the 3Com logo and Graffiti are registered trademarks, and HotSync, PalmPilot, Palm OS and the PalmPilot logo are trademarks of 3Com Corporation.
