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Business valuations

Market Value

The estimated amount for which an asset should exchange on the valuation date between a willing buyer and a willing seller in an arm’s length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion.

Existing use Value

The estimated amount for which a n object should exchange, on the date of valuation, between a willing buyer and a willing seller in an arm’s length transaction after proper marketing wherein the parties had acted knowledgeably, prudently and without compulsion, assuming that the buyer is granted vacant possession of all parts of the object/property required by the business and disregarding potential alternative uses.

Market Rent

The estimated amount for which a property/object should be leased on the valuation date between a willing lessor and a willing lessee on appropriate lease terms in an arm’s length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion.

Fair Value

The estimated price for the transfer of an asset between identified knowledgeable parties that properly reflects the respective interests of those parties.

Cadastral Value

The cadastral value is the basis for calculation of the cadastral income of the concerned property. It is calculated in accordance with the prescriptions established by law.

Special Value

An amount that reflects particular attributes of an asset that is only of value to a special buyer.

Special Assumption

An assumption that assumes facts that differ from the actual facts existing at the valuation date.

Insurance valuations

Reinstatement Value

Reinstatement value is defined as the monetary amount required to reproduce property of like kind and quality at one time in accordance with current market prices for materials, labour, manufactured equipment, contractors overhead, profit and fees, but without provisions for overtime, bonuses for labour, or premiums for materials.

Actual Value

Reinstatement value under deduction of wear and tear.

Dismantling Cost

The dismantling cost is the estimated amount for which buildings and equipment could be demolished and cleared, excluding moveable equipment and stocks, in order to reinstate a green field. Potential soil remediation, cleaning reservoirs or removing dangerous substances or recovery for valuable materials (steel, cupper, …) are not included in the calculation and can influence the total amount of the dismantling cost (dis)advantageously.

Valuation Methods

Explanation of Valuation Methods

A market approach is a method of determining the appraisal value of an asset based on the selling price of similar items. Regardless of what asset is being valued, the market approach studies recent sales of similar assets, making adjustments for differences in size, quantity or quality.

In the real estate industry, a property’s value can be estimated by looking at the comparables: recently sold properties that are similar in size and features that are located within a close geographic proximity to the property being valued.

The cost approach is a real estate valuation method that surmises that the price a buyer should pay for a piece of property should equal the cost to build an equivalent building. In cost approach appraisal, the market price for the property is equal to the cost of land plus cost of construction, less depreciation

The income approach is a real estate appraisal method that allows investors to estimate the value of a property by taking the net operating income of the rent collected and dividing it by the capitalization rate. The income approach is typically used for income-producing properties and is one of three popular approaches to appraising real estate.

The Income Approach can be based on:

  • A capitalisation of the income using a capitalisation rate (yield)
  • A Discounted Cash Flow (DCF) method, based on the incoming and outgoing cashflows over a certain period

Business Interruption

Purpose of the Insurance Business Interruption

Replace the company following an insured material loss in the financial situation that it would have been in, had the loss not occurred.

Amount declared (insured)

The declared (insured) amount corresponds to the sum (for a period of 12 months, or for a period equal to the indemnity period if this is greater than 12 months) of the total fixed costs plus the result, or the turnover minus variable costs, which amounts to the same.

As a general rule, the amount to be declared should be reduced only by costs which are approximately proportional to the total turnover.

Fixed costs

Fixed costs are the operating expenses that the company may have to bear, during a total or partial interruption of the business as a result of a claim arising from an insured risk.These are therefore costs whose importance are not constantly proportional to the revenue, i.e. those which demonstrate or could demonstrate some independence from them.

Variable Costs

Variable costs are the operating expenses directly linked to manufacturing, sales or service operations and which are directly proportional to changes in the turnover.

Indemnity Period

The indemnity period corresponds to the period, starting on the day of the loss, during which the company’s financial situation remains affected by the loss. This period must take into account the time needed to rebuild production potential, but above all the time needed for the company to record results comparable to those it would have obtained if the disaster had not occurred.

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