Features
- Integration of risks in the corporate planning
- Simulation of the company earnings within possible ranges of variations
- Calculation of the necessary equity capital to cover the risks and calculation of the risk corresponding yield (cost of capital) for the Fair Value valuation
- Rating forecast
- Determination of expectancy values and standard deviation
- Comparison of budgeted balance sheets and expected balance sheets
Simulation based valuation & rating forecast (Monte-Carlo-Simulation)
Decision making for investments requires powerful methods for valuating uncertain payments (earnings) by adequate risks consideration, thus uncertainty of planning. Based on identified and valuated risks the entire risk-volume of an investment is determined by aggregation. The volume of this uncertainty of forecast serves to the calculation of upper-price-limit for an intended investment.
With the simulation of all risks by a method for risk-aggregation representative samples of potential future-scenarios of a company are calculated, following theFutureValue™-approach of Dr. Werner Gleissner. This provides a probability distribution of the deviations of the company earnings within the scope-limits and further results allowing a valuation as the probability of a success of the investment.
The losses identified in this way lead directly to the need of net equity, which is a risk-criteria.
An increasing risk-caused need of expensive equity redounds leads to an increasing weighted average cost of capital (WACC) and so to decreasing company value and a lower rank.
The WACC determined as described considers risks and profitability in equal measure in corporate valuation and thereby transparency and planning-security is secured by the Fair Value valuation.
Detailed information regarding the method you can find in the following publications of Dr. Werner Gleissner:
- Brief instruction to risk management
- DAX 2006 - short version
- Corporate risk management
- Risk management glossary
Dr. Werner Gleissner is head of managing board of FutureValueGroup AG and managing director of TMCE RiskCon ltd. and assistant professor at the European Business Scholl.
