Discount is the difference between the prices of the same goods with different delivery times.
Several meanings of the economic concept of discount, determining the discount rate based on discount rates
|
Discount is, definition
The discount is the difference between the prices at which a material value or product is currently being sold and its face value cost on sale or redemption
Discount- this isdiscount with the declared list price prices product or a service provided by a seller to a consumer.
The discount is purchase of drafts, treasury bills or bonds at a price below par.
Discount (Discount) is
The discount is difference between the price at the moment and at the time of redemption or the face value of the security.
The discount is the difference between the forward rate and the rate for immediate delivery of the currency.
The discount is difference between prices security in the stock market for this moment time and denominations valuable papers(price) upon redemption.
The discount is difference in selling price product or material value at the present time, and the price of its face value at redemption or at sale.
The discount is the amount of money that is paid in order to obtain a soft loan. When obtaining a mortgage loan, the discount is deducted from the principal amount loans.
Concept of discount
In economic vocabulary, the discount has two meanings. The first is accounting bills. That is, it is the difference between the prices of a security stock market at a given point in time and the par value of the securities (price) when they are redeemed. Purchase and sale of securities (i.e. bills), at the time of redemption is always carried out at the lowest price than the face value (amount) indicated on the bill. This one, just, can be called a discount.
Another definition of discount is taken by banking organizations when discounting bills. The discount rate is defined as , by which the value of future receipts is brought to the present time. In another way, it is called the discount rate.
Discount (English "discount" is translated as a discount) - the difference in the price at which a product or material value is currently sold and the price of its face value at redemption or at sale.
On the stock market The discount determines the difference in the price of a security purchased at a given time and its present value at face value.
That is, for example, you can buy a share at exchange trading with a face value of $800 for $700, in which case the discount will be the difference of $800-$700 = $100.
The difference in the price of the product, the discount, is determined by the difference in time supplies this product. Today the product is cheaper, and the next supply will cost more.
In relation to the exchange rate, the discount is the difference between the forward exchange rate, that is, a fixed rate at the time of the transaction with payment for the future and the rate for immediate payment.
The discount is widespread enough in the modern economy to attract interest and increase the number of sales in the desired time frame.
To attract customers, sales of goods and things are arranged, discount discounts are assigned. For example, a corporate brand selling shoes has a network of stores around the city where fresh models of shoes are sold. A discount center or stock store under the banner of this brand will sell shoes at big discounts in a certain season.
Usually in discount centers they sell last year's models of clothes and shoes.
Discount rate and its calculation
Discounting- a definition relating to the concept of "discounts". It expresses a cast economic indicators various periods(years, months, half-years or quarters) to a comparable form. This is possible using the discount factor. It is calculated using the compound interest formula. And above all, it is necessary for investors to know the future returns on their investments - this is the basis of investment decisions.
Discount rate- defined as interest rate to convert future income streams into present value. It is applicable when discounting future financial flows NPV. The discount rate reflects taking into account the time factor and risks. That is, when using a discount rate, it is easy to calculate the amount that an investor needs to spend in order to receive the expected value in the future. income.
Beyond change of money, it is necessary to know exactly the time of the project implementation. This is necessary in order to choose the discount rate as accurately as possible and calculate with its help the possible income from these investments.
That is why so much attention is paid to the discount rate. The future of many investment projects, and maybe the company, depends on it. Percentage, in general concept, is the cost of capital for investor. If the condition that the value of money may suddenly decrease in real time due to inflation, two interest rates can be used in the business plan.
The discount rate is interest rate, used to recalculate future income streams into a single present value. The discount rate is applied when calculating the present value of future financial flows NPV.
Justification of the discount rate
To perform financial and economic calculations when evaluating a project, it is necessary to determine the discount rate. Determining the discount rate is one of the most controversial issues among investors. There are several points of view on process determining the discount rate.
Some experts, “determining the discount rate, usually proceed from the so-called safe or guaranteed level of return on financial investments, which is provided by the state bank on deposits or in transactions with securities. risk, moreover, the more risky the considered project or financial contract is considered, the greater the amount of the premium for risk".
Others (for example, R. Braley, S. Myers) believe that the discount rate is opportunity cost investing in a project, not in the market capital, i.e. instead of implementing the project, X can be given to shareholders who will invest them in financial assets.
It can be seen from the figure that alternative expense project implementation represents the amount that shareholders could receive if they invested their money at their own discretion. Thus, when discounting financial flows project based on the expected return of comparable financial assets, determines how much investors are willing to pay for the project.
Src="/pictures/investments/img1972117_dohodnost_aktsionerov.jpeg" style="width: 600px; height: 746px" title="(!LANG: shareholder return">!}
We will proceed from the first point of view. The maximum percentage on deposits for individuals in Sberbank (from 10,000 rubles, for 2-3 years) is 14.5%. We believe that jar takes into account inflation. Suppose that he considers this project to be low-risk. Prize for the risk will be 4.5%. Thus, the discount rate will be 14.5%+4.5%=19%.
Discount rate calculation
The basis for predicting the discount rate is the theoretical premise of a close relationship between the yield of debt instruments (bonds) and equity instruments (shares). In general, an investor is willing to take on more risk (buy stocks) only if the predicted profitability for them will exceed profitability on bonds plus certain prizes for the risk. According to the model considered here, the future required rate of return by the investor is the sum of:
The base rate for the issuer is the rate of predicted yield on foreign currency (dollar) corporate bonds of the given issuer(takes into account the premium for credit risk);
Country risk premiums for holders of equity instruments (takes into account the risk of investing in equity instruments, which is typical for the Russian stock market compared to the bond market);
Premiums for industry risks (takes into account financial flows due to industry specifics);
Premium associated with the risk of poor corporate governance;
Illiquidity risk premiums issuer.
In general, the formula for calculating the future discount rate can be written as follows:
Calculation of the base rate by issuer
The base rate is an integral part of the discount rate. By your own meaning base rate shows at what minimum profitability they are ready to invest in a business. Contrary to popular belief, which considers the value of the base rate to be the same for all companies under consideration, the approach under consideration takes into account differences in business even at this initial stage. base rate for each companies individual. This rate depends on the financial stability of a particular enterprise.
Financial stability companies is determined either on the basis of a credit rating assigned to the issuer by independent rating agencies (S&P, Moody’s, Fitch), or by analyzing its financial condition. Ideally, each company has its own base rate.
Thus, since the base rate takes into account the level of financial stability of the company, it really reflects the degree of risk (and, as a result, the minimum required return) that corresponds to investments in a particular company.
Calculation of the country risk premium
Country risk is the risk of inadequate behavior of official authorities in relation to businesses operating in the country in question. The more predictable the attitude of the state towards business, the more the policy pursued by the state contributes to the development of enterprises, the lower the risks of doing business in such a country and, as a result, the lower the required profitability.
Country risk can be measured and expressed in terms of the additional return that investors will demand when investing in stocks or bonds of enterprises operating in the country in question.
In order to understand what is the additional yield that investors are now demanding to compensate for country risk, it is enough to compare the yields of government and corporate bonds. At the same time, to increase the accuracy of calculations, the compared bonds should have approximately the same level of liquidity, credit quality and duration. Thus, the difference in the profitability of the basket of corporate and state. bonds will be determined only by the presence of country risk for investors investing in corporate bonds (for loan bonds the concept of country risk is not applicable).
The resulting difference in yields shows the amount of country risk for holders of debt instruments. To convert this indicator when working with stocks, the calculated amount of country risk is multiplied by a correction factor determined by an expert.
Industry risk premium
This component of the discount rate is supranational in nature (that is, does not depend on the country in which the business is conducted) and is determined solely by internal feature industries - volatility their financial flows. For example, volatility flows in retail and oil production will be completely different.
The most complete attitude of investors to the comparative measure of risk industries expressed in developed equity markets. They are the source of calculation of industry premiums. For each interested industries a set of companies under study is determined, for which the industry average discount rate is calculated.
Objective grounds for the emergence of an additional premium for industry risk arise when the industry average discount rate (the investor's requirement for a minimum return) exceeds the existing return on state bonds USA - the most reliable asset for the investor. Industries with average discount rates lower than government bond yields USA are considered relatively risk-free, i.e. investors do not lay down additional specific requirements that increase the issuer's SD data industries. For all other industries, the industry risk premium is calculated as the difference between the industry's average SD and government bond yields. USA. Accordingly, the calculated industry premium applies to all its issuers.
Premium for the risk of poor corporate governance
This premium reflects the risks of the owner of the issuer's shares, primarily related to the withdrawal of net profit and assets from the company.
Illiquidity premium
This premium arises due to the possible difficulties of the investor in acquiring or selling a block of shares without much loss in price and time. Ceteris paribus, an investor will buy a more liquid one.
Discount rate calculation methods
When calculating the discount rate for your own capital two main methods are used:
Valuation Model capital assets(CAPM);
Aggregated method for calculating the discount rate;
Method of industry average return on assets and capital;
Determining the discount rate by expert means;
Before proceeding to the consideration of methods for calculating the discount rate for equity, we note the importance of taking into account the risk factor in business valuation.
When determining the profitability of future investments, it is necessary not only to calculate the amount of income, but also to determine the potential risk that is associated with the ownership of an asset.
In business valuation, risk means the estimated degree of uncertainty (certainty) in obtaining expected future income.
For a given level of expected future income market will pay more if the receipt of these incomes will be higher, and vice versa.
There are two types of risk in business valuation:
Systematic risk characterizes external in relation to enterprise risks that it is unable to influence or prevent. Systematic risks appear under the influence of events of a general nature - such as an economic recession or rise, an increase in interest rates. These events affect the state of affairs of any firm and, therefore, cannot be eliminated through the diversification of the investment portfolio (set of financial assets various issuers). For this reason, systematic risk is also referred to as "market" or "non-diversifiable" risk.
Unsystematic risk associated with financial position, the activities of a particular firm, with its inherent commercial and financial risks.
Based on the brief description types of risks, we will begin to consider methods for determining the discount rate for equity.
Capital Asset Pricing Model (CAPM)
This model allows a fairly satisfactory description of the relationship between risk and the expected return on assets (or cost of capital).
There are some assumptions that take place in process application of the CAPM model:
The model proceeds from the position that investors avoid risk, and if they accept it, they demand compensation; "risk aversion" is usually interpreted as a demand for compensation for risk;
We are talking about rational investors acting on the basis of the principle of reasonableness. Rational investors tend to diversification of their investment portfolios, that is, a rational investor will never invest in one company
All investors have the same information about a particular business and, accordingly, about its inherent risks, and, accordingly, equally evaluate the expected rates of return
This model does not take into account costs on transactions for the sale of assets, and also does not take into account the tax factor - that is, the rate of income when providing loan and the cost of borrowed funds are the same.
The Capital Asset Pricing Model (CAPM) is based on the principle that business is an eternal category, that is, using this model, the rate of return on a risky asset is determined. This is a function of some risk-free return and the premium paid for the risk of owning a given asset.
The risk premium is calculated as a function of the change in the price of a given asset for a certain period time versus change market as a whole for the same .
The basic CAPM model looks like this:
Where Re - the required (expected) rate of return on own;
Rf - risk-free rate of return;
Rm - average market rate of return on any set of securities;
b is a quantitative measure of systematic risk, which evaluates changes in the returns of the shares of individual companies in comparison with the dynamics of market returns;
(Rm - Rf) - market risk premium.
The above formula can be used to estimate the expected profitability of open companies.
The risk-free rate Rf is determined in the amount of the rate of return on investments that provide the minimum return with the highest degree probabilities(close to 100%).
Abroad, in the practice of business valuation, the rate of return on government securities is usually used as a risk-free rate (as a rule, at the level of 6 - 8%).
In domestic practice, at present, the issue of the risk-free rate is considered ambiguously - the following can be taken as such:
Yield rates for cash deposits banks the highest category reliability;
Discount rate of the Bank of Russia (from November 2000 to December 2001 25%);
When assessed in dollar terms - the rate of return of a bonded domestic foreign currency loan (VEB bonds of the 4th tranche).
The average market rate of return Rm is determined based on the amount of income in the securities market in the industry to which the assessed belongs, over a sufficiently long period of time in retrospect. In the domestic market, to determine the rate Rm, RTS indicators (“ Russian Trading System (RTS)”) or news agencies - such as AK&M, Rosbusinessconsulting, etc.
The value of b as a quantitative measure of systematic risk can be determined based on the following relationship:
b = percentage change in earnings per share of the company being valued
Percentage of change in the average market quotation of shares circulating in this market
The value of b indicates how much the risk of owning specific assets is greater or less than the risk of the market portfolio. If b> 1, then the assets are considered more risky and are classified as aggressive assets. If b
Thus, the higher the beta, the higher the risk. The stock price of a company for which the coefficient b is equal to 1.5, with an increasing trend in the market, will grow on average 50% faster compared to the average market level. Conversely, when the market is depressed, the stock price of this company will decrease by 50% faster than the average market price. Therefore, if the stock price in the stock market declines by 10%, we can expect that the share price of this company will fall by 15%.
In the practice of business valuation, the basic formula of the capital asset valuation model is supplemented by the introduction of amendments that allow taking into account non-systematic risks. Then the formula for calculating the rate of return for equity is as follows:
where C1 is the premium for the risk characteristic of a single company;
C2 is the risk premium for investing in ;
C3 - country risk premium.
Consider these amendments:
The company-specific risk premium is applied if the company being valued has a specific risk. As a rule, this risk is associated with the nature of the activities of the company.
Risk premium for investing in small business applies if the company being valued belongs to small business. The purpose of this amendment is to offset additional income volatility from small business. With regard to the total value of the premium for the risk characteristic of a single company, and the premium for the risk of investing in, there has been a recognized investment custom, according to which this value is determined by an expert in the country of investment.
The country risk premium is introduced only when assessing the discount rate for foreign investors. For domestic investors, the level of country risk is reflected in the increased level of both the risk-free rate and the market risk premium. The country risk premium is individual, as it depends on individual risk preferences, knowledge and experience of individual investors. At the same time, the ratings of country risks of the country of investment, which are set by the world's leading rating companies, can be used as a guideline.
The method of cumulative construction of the discount rate
The method of cumulative construction of the discount rate for equity is used in the valuation of closed companies, for which it is difficult to find comparable open companies-analogues and, accordingly, it is impossible to use the CAPM model.
When using the cumulative method, the risk-free rate is taken as the basis, to which is added the risk premium for investing in closed companies. This premium represents the return that the investor "claims" as compensation for unsystematic risks - that is, the additional risks associated with investing in this company compared to risk-free investments.
AT general view the cumulative build model looks like this:
where Re is the rate of return required by the investor;
Сi - additional premiums (allowances) for specific risks
Thus, in the process of applying the cumulative method for calculating the discount rate, it is necessary to identify and quantification as many types of risks inherent in the company as possible.
Discount (Discount) is
The following risk premiums are most often taken into account:
Dependence of the company on a key figure and the presence of a management reserve - allowances are set from 0% to 5%.
Company size. (0-5%). If the company is large, occupies a monopoly position, then the specific risk will be minimal (equal to zero).
The financial structure of the company. - capital structure. (0-5%). High risk is characterized by a significant share of borrowed funds.
Commodity and territorial diversification (0 - 5 %)
Diversification of buyers of the company's products and suppliers of products and services (0 - 5%).
Availability of data on the financial condition of the enterprise in dynamics relative to the financial condition of the enterprise (0 - 5%).
The appraiser decides to what extent to include the above risks in the calculation of the rate of return.
Aggregate method for calculating the discount rate
Most often, in investment calculations, the discount rate is defined as the weighted average cost of capital (weighted average acquisition cost of capital - WACC), which takes into account the cost of equity (equity) capital and the cost of borrowed funds. This is the most objective method for determining the discount rate. At the same time, a capital assets pricing model (CAPM) is used to determine the cost of equity. Determining the discount rate for everything invested is related to calculating the present value of the so-called "debt-free" financial flow, often used by investors who analyze the amount of financial flow generated by a company. To calculate it, the value of the cost of capital used by the company to finance its activities is used. Since such financing involves both own and borrowed funds, then the weighted average initial cost of capital (WACC) acts as the value of the “total” cost of capital. The weighted average cost of capital is calculated using the well-known formula:
Ks - the cost of raising equity capital,
Kd - the cost of borrowing capital,
Ws and Wd - shares of own and borrowed capital, respectively, in the capital structure of the enterprise,
T - income tax rate.
Discount (Discount) is
It is clear that the profitability of a new investment project must be higher than the value of WACC, otherwise it makes no sense to implement it, since it will lower total cost companies. Therefore, it seems logical to use WACC as a discount rate.
The two main problems with using WACC as a discount rate are that:
WACC reflects the present value of the aggregate of sources used to finance the company's usual capital investments and out of the organization's normal activities. investments are exposed to completely different risks than “normal”, and therefore WACC cannot be used as a required rate of return, as it does not take into account the difference in risks of different investments;
If the scale of investment is so large that it significantly changes the structure of the company's financial sources, then WACC cannot be used as a discount rate either.
But even if we are talking about "ordinary" capital investments, then in this case investments may involve varying degrees of risk. So, for example, capital investments associated with the replacement of equipment, as a rule, are less risky than those made with the aim of developing new types of products. When evaluating economic efficiency in this case, the company's weighted average cost of capital can be considered as the minimum allowable value of opportunity costs, increasing the required rate of return depending on the nature of capital investments. Thus, in this case, when determining the discount rate, we use expert opinions, which also introduces an element of subjectivity into this process.
Method of industry average return on assets and capital
The DuPont model or the industry average return on assets and capital method reflects the industry's average return on assets or capital invested. To evaluate this method, ROA (Return of Equity) and ROE (Return of assets) indicators are used, which contain all the risks inherent in the industry of the company being valued. Therefore, the main condition for applying the DuPont model is sufficient information about the state of the industry. DuPont's model has the following form:
To calculate the discount rate, the method of industry-average return on assets and capital is advantageous to use when the shares are not quoted on the stock exchange, i.e. are the least marketable. They do not reflect the true, market value of the company.
When using the DuPont model, companies in the industry are usually divided into certain groups, for example, into small, medium and large companies in terms of equity capital.
The indicators calculated for a particular company are compared with industry averages. Information on ROE and ROA indicators for the industry can be obtained from industry-average reviews of analytical agencies, from various industry ratings.
Market multiplier method
This method is used when there is sufficient information about analogues. It consists in calculating different levels of profit per share. For example, allocate:
/P -- Earnings before Interests Taxes, Depreciation and deterioration
EBIT/P -- Earnings before Interests Taxes taxes per 1 share);
EBT/P- Earnings before Taxes taxes per 1 share);
E/P -- Earnings ( net profit per share).
The advantage of using market multiples as the discount rate is that market multiples fully reflect industry risks. The disadvantage is that the multiples do not reflect the risks that are unique to the company being valued.
Determining the discount rate by expert means
The easiest way to determine the discount rate, which is used in practice, is to establish it by expert means or based on the requirements of the investor. It should also be noted here that the discount rate used in the calculations is almost always agreed upon with the investment bank that raises funds for the project or with the investor. At the same time, in calculations, as a rule, they are guided by the risks of investing in similar companies and markets.
Real options method
Now more and more often it is proposed to use the method of real options, but its application is very difficult in terms of methodology. To take into account such risk factors as the possibility of stopping the project, changing technology, losing the market, when evaluating projects, practices often use highly inflated discount rates - 40--50%. There is no theoretical justification behind these figures. The same results could be obtained by complex calculations, in which one would still have to subjectively determine a lot of predictive indicators.
The choice of the correct value of the discount rate should, of course, be based on the main theoretical approaches to its definition. However, the art of the financial one involved in estimating the value of a business lies in its ability to take into account both the characteristic features of a particular project and the actual conditions of the transaction (the nature and form of " payment» future economic benefits acquired by the investor or lender, its opportunity cost, etc.). As a result, the additional effort spent on working through these nuances will provide the analyst who performed them with a stronger position when negotiating the transaction price with a future investor.
The cumulative construction model is suitable for calculating the discount rate when the purpose of the valuation assumes a more significant role internal factors than external ones. The cumulative construction model can be most successfully applied in any case when evaluating equity. The choice of calculation does not depend on the market activity of the company.
The CAPM model assumes a strong influence of market factors, so it is effective to use it when the company's market activity is high, as well as when the company enters. The CAPM model is the most limited for calculation, because it affects maximum amount factors. It can only be used to assess equity, to assess a company whose shares are quoted on the stock market, and also if the company's performance is typical for the market as a whole.
The determining factor in choosing the WACC model is the assessment of the investment and insurance value of the company or project. The WACC model is a universal model for evaluating invested capital. The calculation of the discount rate by this method is also influenced by the behavior of the company in the market.
The market multiplier method is used when a company is open to the market, because multipliers fully reflect industry risks. It is beneficial to use it when there is sufficient information about analogues. It lies in the calculation different kind profit per share. The method of market multipliers is most successfully applied when the company's market activity is high and with typical behavior in the market.
The method of industry average return on assets and capital (ROA, ROE) is beneficial to use when shares are not quoted on stock exchange, i.e. are the least marketable. The indicators calculated for a particular company are compared with industry averages. The method of industry average return on assets and capital (ROA, ROE) does not depend on market activity, but can only be used to assess equity and if the company's performance is typical for the market as a whole.
The method of % rates is effectively applied in the assessment of the total invested capital, when the company's activity is typical for the industry. The advantage of this method is that the return on invested capital is determined by the market itself. Because there may be several purposes of assessment, then the further choice of calculation can be determined depending on the characteristics of the company and the availability of information. It is effective to use the % rate method when calculating the discount rate for assessing invested capital, since % rates are set by banks based on the market demand for free Money ah at the moment, and they take into account only market risks and do not take into account risks specific only to the company being valued. Analysis of existing methods for calculating the discount rate as in Russian Federation, and abroad, allows us to conclude that it is impossible to choose any one model as the most effective and suitable for all market situations. An effective model is chosen depending on the specific purpose of the assessment and on the characteristics of a particular company, as well as depending on the availability of information.
Calculation of the discount when issuing a bill
When calculating the discount, the drawer issuing his own note takes into account:
The period until which a bill of exchange cannot be presented for payment(i.e., during what period the drawer can use the funds raised from the money issue of the bill);
The cost of resources (% rate) at which the drawer raises (could attract) the same amount of money for the same period.
If the agreement between the drawer issuing his own bill and the future holder of the bill establishes the sale of the bill, then to calculate the discount, it is necessary to determine the nominal (bill) value of the bill. This can be done using the formula:
wherein:
Promissory note term - the number of calendar days from the date following the date of issue of the promissory note to the date of repayment of the promissory note indicated in the text of the promissory note.
It should be noted that, as a rule, it is not advisable to issue bills of exchange with a term “at sight” at a discount. After all, such a bill can be presented for payment within a year from the date of issue on any day and it is not possible to determine its period for calculating a reasonable amount of the discount and, accordingly, the yield of such a bill.
The situation for bills of exchange with a term “at sight, but not earlier than a certain date” is approximately the same, but it is still possible to calculate the discount on such a bill based on the period from the date following the date of issue of the bill to this specific date. Order issue of securities such bills and the calculation of discounts on them is better to determine the accounting policy.
% rate - the rate of attracting resources for a period similar to the term of the bill. For the calculation, the interest rate is usually used, at which the drawer could attract funds for a specified period. The benchmark can be interbank loan rates, average rates on loans or deposits, investment investment rate, etc. The procedure for establishing such rates is determined by the drawer in the accounting policy. Banks, as a rule, prescribe the procedure for setting interest rates on attracted and placed resources in accordance with the terms in the Deposit Policy.
Discount policy
Conducted by central banks, which consists in raising or lowering interest rates for a loan in order to regulate supply and demand for loan capital.
This type of operation belongs to the long-used methods of regulation. acts as a borrower in relation to business banks. Funds are provided subject to the rediscount of bills of banks and secured by the debt of their securities. Such funds received in the central credit link are called rediscount or pawn loans. central bank has the right to manipulate the rate of interest at which he lends to banks. The possibility of setting the "price" of the loan acts as a method of influencing the credit system.
Defined central bank the level of the "loan price" received in economic science and practice the designation of the official "discount rate"8 (which is otherwise also called the discount or pawnshop).
Taken in this way, it has an indirect effect on the ratio of demand and suggestions in the capital market.
An increase in the interest rate, i.e. "Rise" of the loan, limits the amount of demand for borrowed resources and reduces the intention of firms to increase investment. A decrease in the rate "cheapens" the loan, as a result of which the private sector (households, firms) has an increased desire for investment. This incentive is realized in the form of buying shares, production equipment or construction of new production buildings. This is the scheme of this mechanism. AT real life the interaction of parameters is, of course, not always so simple.
The accounting function is important politicians, as manipulation of the interest rate, which amplifies the effect of the application of other regulatory measures by the central bank, namely open market operations and the establishment of required reserves. If the action of one leverage influencing the behavior of an independent commercial bank turns out to be insufficient, then the set of measures taken by the central bank gives it the opportunity to achieve its intention.
Applied to Russian Federation It should be noted that within the politicians In 1995, the Central Bank also began to practice a pawnshop loan, carried out under debt security securities (mainly government treasury bonds).
Sources and links
vipoteku.ru - an information and reference resource that tells about the possibilities of a mortgage transaction
malb.ru - site about small business
dic.academic.ru - Dictionaries and encyclopedias on Academician
ekoslovar.ru - economic dictionary
coolreferat.com - collection of abstracts
xreferat.ru - collection of abstracts
en.wikipedia.org - the free encyclopedia Wikipedia
operbank.ru - site about banking operations
allbest.ru - collection of abstracts
do.gendocs.ru - Lessons, reference books, abstracts
center-yf.ru - Center management finance
km.ru - information multiportal
delovoymir.biz - Business World website
financial-exchange.rf - financial portal exchange
Encyclopedia of the investor. 2013 .
Synonyms:- - discounter... Dictionary of the use of the letter Yo
Discount/ёr/ … Morphemic spelling dictionary
Discounter, discounters, discounter, discounters, discounter, discounters, discounter, discounters, discounter, discounters, discounter, discounters (
The section is very easy to use. In the proposed field, just enter the desired word, and we will give you a list of its meanings. I would like to note that our site provides data from various sources - encyclopedic, explanatory, word-building dictionaries. Here you can also get acquainted with examples of the use of the word you entered.
The meaning of the word discount
discount in the crossword dictionary
discount
Economic glossary of terms
(English discount - discount, lat. computare - take into account) discount
the difference between the price at which a security is sold on the stock exchange at a given time, its current exchange rate, on the one hand, and the face value of the security or the price at which the security is sold at maturity. For example, a share with a face value of $1,000 was purchased on the stock exchange for $950, the discount is $1,000-950=$50;
the difference between the forward exchange rate (the rate fixed at the time of the transaction, but with payment on it in the future) and the rate for immediate payment. For example, if the forward rate of the dollar with payment in six months is 3000 rubles, and the current rate with immediate payment is 2500 rubles, then the discount is 3000-2500=500 rubles;
the difference between the prices of goods due to different delivery times. For example, the price of a computer upon delivery in a month is 2 million rubles, and upon delivery after 3 months - 1.9 million rubles,
Glossary of financial terms
DISCOUNT
discount. The difference between prices for the same product with different delivery times. Decrease in the price of the goods as a result of a discrepancy between its quality and the quality specified in the contract.
DISCOUNT (DISCOUNT) - the difference between the real value of the currency and its parity (in the case when the value is below parity, i.e. state-guaranteed gold reserves).
Explanatory Dictionary of the Living Great Russian Language, Vladimir Dal
discount
m. concession, discount, upon receipt of money on a bill of exchange before the due date; accounting. Discount, related to this concession; accounting. Discount, -tovat, accept or give a bill for accounting before the due date; take into account.
Explanatory dictionary of the Russian language. D.N. Ushakov
discount
discount, m. (English discount) (bargaining Fin.). Accounting for bills.
New explanatory and derivational dictionary of the Russian language, T. F. Efremova.
Encyclopedic Dictionary, 1998
discount
DISCOUNT (English discount, Italian sconto)
interest charged by banks when discounting bills (discount interest).
Accounting for bills.
Big Law Dictionary
discount
(English discount, Italian Sconto - discount) -
the difference between the price at the moment and At the time of redemption or the face value of the security; purchase of a financial instrument (for example, a promissory note) until the moment of its redemption, and at a price that is less than the face value;
the difference between the forward rate and the rate for immediate delivery of the currency;
the difference between prices for the same product with different delivery times;
a decrease in the price of the goods as a result of its non-compliance with the quality specified in the contract;
downward deviation from the official exchange rate;
interest charged by banks when discounting bills.
Discount
(English discount, Italian sconto, French escompte),
bill accounting;
interest charged by the banks of capitalist countries when discounting bills of exchange.
Wikipedia
Discount (bank)
Bank Discount- one of the three largest banks in Israel, with about 260 branches.
Discount
Discount :
- A discount from the advertised list price of a good or service provided by a seller to a consumer. Discount may be offered upon immediate cash payment. Trade discounts are given to allow the seller to increase sales and therefore achieve economies of scale, or are used as a ruse to gain "loyalty" of the customer, or are granted at the request of a large and powerful buyer.
- Purchase of bills of exchange, treasury bills or bonds at a price below par. Bills and bonds are redeemed at some point in the future at their face value. A buyer who purchases a bill or bond at the time of issue pays for it less than the face or face value between the price at which he buys the bill or bond and its face value, which is the interest on the loan secured by the bill or bond. If the owner of a bill or bond wants to then sell them before they expire, he can get for them a sum less than the face value, though more than what was paid for them. The difference between the original price paid by him and the amount received depends mainly on how much time remains before the expiration of this security. For example, if a bond with a par value of 1000 and a term of one year was purchased for 900, then the discount on the redemption value corresponds to the interest rate: $\frac(1000-900)(900)=11.1%$ on the loan.
- In game theory, the present value of a currency in the future multiplied by the probability of repeating the game for games with an unknown number of repetitions.
- The difference between the real market value of collateralized property and its collateral value used to determine the amount of a loan issued by a bank.
Examples of the use of the word discount in the literature.
Prepaid expenses such as discount on debt obligations issued by the bank, etc.
When accounting for bills of exchange, the bank charges a certain fee from the client for advancing funds in the form of discount.
How to determine the interest rate for discounting, the so-called rate discount?
The discount center is a store. But not just a store, but a place where branded items are sold. Their difference from other things is that they simply went out of fashion, and those who understand it will never buy them. And since branded stores follow fashion, they try to get rid of such remnants of the unsold. As a rule, all this is brought to one place and is already sold here.
The discount center is a pretty decent-looking place. There are shelves, hangers, and even fitting rooms. In general, the store is like a store. If it weren’t for one difference, you can buy a branded item that has gone out of fashion here at 2 times cheaper. Sometimes the discount center is located in the basement or semi-basement, and then things here are just heaped in heaps.
The discount center is not second-hand. Nobody wore these things. They are brand new, with tags and even with the old price and original packaging. But here, as in any other store, you can buy a real fake, because few of us can accurately determine this dress by the quality of the seams, or just a miserable fake of a well-known brand.
Not only clothes and shoes that could not be sold in a regular company store, but also clothes with some defects are sent to the discount center. They can be either completely invisible or clearly visible, for example, broken locks or heels of boots smeared with glue along the seams.
There is also such a thing as stock centers. Clothing comes from a variety of sources. This is a customs confiscation, and a collection of last season that was not sold in stores, and Chinese things. In addition, the owner of the stock center buys things on his own. But this purchase is carried out from Chinese manufacturers, so branded clothes can be found here much less often.
You can distinguish a stock center from a discount center by what is sold there. Stock centers simultaneously sell clothes of different brands, both well-known and those that we have never heard of. The price of such clothes is minimal. Sometimes here you can find things with defects, and sometimes jeans and dresses are brought here from the warehouses of decent stores and from good manufacturers. They never lay on the shelves of the store itself, because they had already gone out of fashion. Discount only sells clothes from one brand, and they look great here.
Stocks have only one plus - low price. But the biggest disadvantage is a dubious manufacturer. And that means questionable quality. Discounters are more fortunate. Clothes from fashion boutiques are brought here, and you can stumble upon a fake here much less often. But discounts also have their minus - these clothes have long gone out of fashion. besides, it is difficult to find your size here - in discounts, clothes of large sizes are most often present.
Separately, it is worth noting the fact that shoes and clothes in discounts are often sold not just old, but very old. These are clothes from the 2009-2010 collection. These clothes are not just out of fashion for a long time, they are completely dilapidated. In addition, after numerous fittings and transfers, clothes become very dirty.
Discount is the difference between the prices of the same goods with different delivery times.
Several meanings of the economic concept of discount, the process of determining the discount rate based on discount rates
Expand content
Collapse content
Discount is, definition
The discount is the difference between the prices at which a material value or commodity is currently being sold and the price of its face value when sold or redeemed
The discount is discount from the advertised list price of a good or service provided by the seller to the consumer.
The discount is purchase of bills of exchange, treasury bills or bonds at a price below par.
The discount is the difference between the price at the moment and at the time of redemption or par value of the security.
The discount is the difference between the forward rate and the rate for immediate delivery of the currency.
The discount is the difference between the prices of a security on the stock market at a given point in time and the face value of the securities (price) when they are redeemed.
The discount is the difference in the price at which a commodity or material value is being sold at the present time, and the price of its face value at redemption or sale.
The discount is the amount of money that is paid in order to obtain a soft loan. When obtaining a mortgage, the discount is deducted from the principal amount of the loan.
Concept of discount
In economic vocabulary, discount has two meanings. The first is bills of exchange. That is, it is the difference between the prices of a security on the stock market at a given point in time and the face values of securities (price) when they are redeemed. The purchase and sale of securities (that is, bills) at the time of redemption is always carried out at the lowest price than the face value (amount) indicated on the bill. This process, just, can be called a discount.
8
Another definition of discount is the percentage taken by banking organizations when discounting bills. The discount rate is defined as the percentage rate at which the value of future receipts is adjusted to the present. In another way, it is called the discount rate.
Discount (English "discount" is translated as a discount) - the difference in the price at which a product or material value is currently sold and the price of its face value at redemption or sale.
On the stock exchange, the discount determines the difference in the price of a security purchased at a given time and its present value at face value.
That is, for example, you can buy a share at exchange trading with a face value of $800 for $700, in which case the discount will be the difference of $800-$700 = $100.
The difference in the price of goods, the discount, is determined by the difference in the time of delivery of this product. Today the goods are delivered cheaper, and the next delivery will cost more.
In relation to the exchange rate, the discount represents the difference between the forward exchange rate, that is, the fixed exchange rate at the time of the transaction with payment for the future period and the exchange rate for immediate payment.
The discount is widespread enough in the modern economy to attract interest and increase the number of sales in the desired time frame.
To attract customers, sales of goods and things are arranged, discount discounts are assigned. For example, a corporate brand selling shoes has a network of stores around the city where fresh models of shoes are sold. Discount center or stock store under the banner of this brand will sell shoes with big discounts in a certain season.
Usually in discount centers they sell last year's models of clothes and shoes.
Discount rate and its calculation
Discounting- a definition relating to the concept of "discount". It expresses the reduction of economic indicators of different periods (years, months, half-years or quarters) to a comparable form. This is possible using the discount factor. It is calculated using the compound interest formula. And above all, it is necessary for investors to know the future returns on their investments - this is the basis of investment decisions.
Discount rate- is defined as the interest rate for converting future income streams into present value. It is applicable when discounting future NPV cash flows. The discount rate reflects money, taking into account the time factor and risks. That is, when using a discount rate, you can easily calculate the amount that an investor needs to spend in order to receive the expected income in the future.
In addition to changes in money, it is necessary to know exactly the time of the project. This is necessary in order to choose the discount rate as accurately as possible and calculate with its help the possible income from these investments.
That is why so much attention is drawn to the discount rate. The future of many investment projects, and maybe the company, depends on it. Interest, in general terms, is the cost of capital for an investor. If the condition that the value of money can suddenly decrease in real time due to inflation is met, two interest rates can be used in the business plan.
The discount rate is the interest rate used to convert future income streams into a single present value. The discount rate is applied when calculating the present value of future NPV cash flows.
Justification of the discount rate
To perform financial and economic calculations when evaluating a project, it is necessary to determine the discount rate. Determining the discount rate is one of the most controversial issues among investors. There are several points of view on the process of determining the discount rate.
Some experts, “determining the discount rate, usually proceed from the so-called safe or guaranteed level of return on financial investments, which is provided by the state bank on deposits or in transactions with securities. or financial contract, the higher the risk premium."
Others (for example, R. Braley, S. Myers) believe that the discount rate is opportunity cost investing in a project, and not in the capital market, i.e. instead of implementing project X, the money can be given to shareholders, who will invest it in financial assets.
It can be seen from the figure that the opportunity cost of a project is the rate of return that the shareholders could receive if they invested their money as they saw fit. Thus, by discounting the cash flows of a project by the expected return on comparable financial assets, it is determined how much investors are willing to pay for the project.
We will proceed from the first point of view. The maximum percentage on deposits for individuals in Sberbank (from 10,000 rubles, for 2–3 years) is 14.5%. We believe that the bank's interest rate takes into account inflation. Let us assume that the investor considers this project to be low-risk. The risk premium will be 4.5%. Thus, the discount rate will be 14.5%+4.5%=19%.
Discount rate calculation
The basis for predicting the discount rate is the theoretical premise of a close relationship between the yield of debt instruments (bonds) and equity instruments (shares). In general, an investor is willing to take on more risk (buy stocks) only if the expected return on them exceeds the return on the bond plus certain risk premiums. According to the model considered here, the future required rate of return by the investor is the sum of:
Base rate for the issuer - the rate of predicted yield on currency (dollar) corporate bonds of this issuer (takes into account the premium for credit risk);
Country risk premiums for equity holders (takes into account the risk of investing in equity instruments that is specific to Russian market stocks versus the bond market).
Premiums for industry risks (takes into account the volatility of cash flows due to industry specifics);
Premium associated with the risk of poor corporate governance;
Premiums for the risk of illiquidity of the issuer's shares.
In general, the formula for calculating the future discount rate can be written as follows:
Calculation of the base rate by issuer
The base rate is an integral part of the discount rate. In its meaning, the base rate shows at what minimum profitability market participants are ready to invest in a business. Contrary to popular belief, which considers the value of the base rate to be the same for all companies under consideration, the approach under consideration takes into account differences in business even at this initial stage. The base rate for each company is individual. This rate depends on the financial stability of a particular enterprise.
The company's financial stability is determined either on the basis of a credit rating assigned to the issuer by independent rating agencies (S&P, Moody's, Fitch), or by analyzing its financial condition. Ideally, each company has its own base rate.
Thus, since the base rate takes into account the level of financial stability of the company, it really reflects the degree of risk (and, as a result, the minimum required return) that corresponds to investments in a particular company.
Calculation of the country risk premium
Country risk is the risk of inadequate behavior of official authorities in relation to businesses operating in the country in question. The more predictable the attitude of the state towards business, the more the policy pursued by the state contributes to the development of enterprises, the lower the risks of doing business in such a country and, as a result, the lower the required profitability.
Country risk can be measured and expressed in terms of the additional return that investors will demand when investing in stocks or bonds of enterprises operating in the country in question.
In order to understand what is the additional yield that investors are now demanding to compensate for country risk, it is enough to compare the yields of government and corporate bonds. At the same time, to increase the accuracy of calculations, the compared bonds should have approximately the same level of liquidity, credit quality and duration. Thus, the difference in the yield of a basket of corporate and government bonds will be due only to the presence of country risk for investors investing in corporate bonds (for government bonds, the concept of country risk is not applicable).
The resulting difference in yields shows the amount of country risk for holders of debt instruments. To convert this indicator when working with stocks, the calculated amount of country risk is multiplied by a correction factor determined by an expert.
Industry risk premium
This component of the discount rate is supranational in nature (that is, it does not depend on the country in which the business is conducted) and is determined solely by the internal feature of industries - the volatility of their cash flows. For example, the volatility of flows in retail trade and oil production will be quite different.
The most complete attitude of investors to the comparative measure of the risk of industries is expressed in developed stock markets. They are the source of calculation of industry premiums. For each industry of interest, a set of companies under study is determined, for which the average industry discount rate is calculated.
Objective grounds for an additional industry risk premium arise when the industry average discount rate (the investor's minimum yield requirement) exceeds the prevailing yield on US government bonds, the most reliable asset for an investor. Industries with average discount rates lower than US Treasury yields are considered relatively risk-free, that is, investors do not lay down additional specific requirements that increase the SD of issuers of these industries. For all other industries, the industry risk premium is calculated as the difference between the industry's average SD and US government bond yields. Accordingly, the calculated industry premium applies to all its issuers.
Premium for the risk of poor corporate governance
This premium reflects the risks of the owner of the issuer's shares, primarily related to the withdrawal of net profit and assets from the company.
Illiquidity premium
This premium arises due to the possible difficulties of the investor in acquiring or selling a block of shares without much loss in price and time. Other things being equal, an investor will buy a more liquid asset.
Discount rate calculation methods
When calculating the discount rate for equity, two main methods are used:
Capital Asset Pricing Model (CAPM);
Aggregated method for calculating the discount rate;
Method of industry average return on assets and capital;
Determining the discount rate by expert means;
Before proceeding to the consideration of methods for calculating the discount rate for equity, we note the importance of taking into account the risk factor in business valuation.
When determining the profitability of future investments, it is necessary not only to calculate the amount of income, but also to determine the potential risk that is associated with the ownership of an asset.
In business valuation, risk means the estimated degree of uncertainty (certainty) in obtaining expected future income.
For a given level of expected future returns, the market will pay more if it is more likely to receive those returns, and vice versa.
There are two types of risk in business valuation:
Systematic risk characterizes the risks external to the enterprise, which it is not able to influence or prevent. Systematic risks appear under the influence of general events - such as inflation, economic recession or expansion, increase in interest rates. These events affect the state of affairs of any firm and, therefore, cannot be eliminated through the diversification of the investment portfolio (a set of financial assets of various issuers). For this reason, systematic risk is also referred to as "market" or "non-diversifiable" risk.
Non-systematic risk is associated with the financial position, activities of a particular company, with its inherent commercial and financial risks.
Based on the presented brief description of the types of risks, we will begin to consider methods for determining the discount rate for equity.
Capital Asset Pricing Model (CAPM)
This model allows a fairly satisfactory description of the relationship between risk and the expected return on assets (or cost of capital).
There are some assumptions that take place in the process of applying the CAPM model:
The model proceeds from the position that investors avoid risk, and if they accept it, they demand compensation; "risk aversion" is usually interpreted as a demand for compensation for risk;
We are talking about rational investors acting on the basis of the principle of reasonableness. Rational investors tend to diversify their investment portfolios, that is, a rational investor will never invest in one enterprise
All investors have the same information about a particular business and, accordingly, about its inherent risks, and, accordingly, estimate the expected rates of return in the same way.
This model does not take into account the costs of transactions for the purchase and sale of assets, and also does not take into account the tax factor - that is, the rate of income when granting a loan and the cost of borrowed funds are the same.
The Capital Asset Pricing Model (CAPM) is based on the principle that business is an eternal category, that is, using this model, the rate of return on a risky asset is determined. This return is a function of some risk-free return and the premium paid for the risk of owning the asset.
The risk premium is calculated as a function of the change in the price of a given asset over a certain period of time compared to changes in the market as a whole over the same period.
The basic CAPM model looks like this:
Where Re is the required (expected) rate of return on equity;
Rf is the risk-free rate of return;
Rm is the average market rate of return on any set of securities;
b is a quantitative measure of systematic risk that evaluates changes in the returns of the shares of individual companies in comparison with the dynamics of market returns;
(Rm - Rf) is the market risk premium.
The above formula can be used to estimate the expected profitability of open companies.
The risk-free rate Rf is determined in the amount of the rate of return on investments that provide the minimum return with the highest degree of probability (close to 100%).
Abroad, in the practice of business valuation, the rate of return on government securities is usually used as a risk-free rate (as a rule, at the level of 6 - 8%).
In domestic practice, at present, the issue of the risk-free rate is considered ambiguously - the following can be taken as such:
Rates of return on cash deposits of banks of the highest category of reliability;
Discount rate of the Central Bank of the Russian Federation (from November 2000 to December 2001 25%);
When assessed in dollar terms - the rate of return of a bonded domestic foreign currency loan (VEB bonds of the 4th tranche).
The average market rate of return Rm is determined based on the amount of income in the securities market in the industry to which the company being valued belongs, over a sufficiently long period of time in retrospect. In the domestic market, to determine the rate Rm, indicators of the RTS (Russian Trading System) or information agencies such as AK&M, Rosbusinessconsulting, etc. can be used.
The value of b as a quantitative measure of systematic risk can be determined based on the following relationship:
b = Percentage change in equity earnings of the company being valued
Percentage of change in the average market quotation of shares circulating in this market
The value of b indicates how much the risk of owning specific assets is greater or less than the risk of the market portfolio. If b> 1, then the assets are considered more risky and are classified as aggressive assets. If b< 1, то данные активы являются менее рискованными, чем рыночный портфель и являются защищенными.
Thus, the higher the beta, the higher the risk. The stock price of a company for which the coefficient b is equal to 1.5, with an increasing trend in the market, will grow on average 50% faster compared to the average market level. Conversely, when the market is depressed, the stock price of this company will decrease by 50% faster than the average market price. Therefore, if the share price in the stock market falls by 10%, we can expect that the share price of this company will fall by 15%.
In the practice of business valuation, the basic formula of the capital asset valuation model is supplemented by the introduction of amendments that allow taking into account non-systematic risks. Then the formula for calculating the rate of return for equity is as follows:
where C1 is the premium for the risk characteristic of a single company;
C2 is the risk premium for investing in small business;
C3 is the country risk premium.
Consider these amendments:
The company-specific risk premium is applied if the company being valued has a specific risk. As a rule, this risk is associated with the nature of the activities of the company.
The small business risk premium is applied if the company being valued is a small business. The purpose of this amendment is to compensate for additional volatility in small business income. With regard to the total value of the premium for the risk characteristic of a single company and the premium for the risk of investing in a small business, a recognized investment custom has developed, according to which this value is determined by an expert in the country of investment.
The country risk premium is introduced only when assessing the discount rate for foreign investors. For domestic investors, the level of country risk is reflected in the increased level of both the risk-free rate and the market risk premium. The country risk premium is individual, as it depends on individual risk preferences, knowledge and experience of individual investors. At the same time, the ratings of country risks of the country of investment, which are set by the world's leading rating companies, can be used as a guideline.
The method of cumulative construction of the discount rate
The method of cumulative construction of the discount rate for equity is used in the valuation of closed companies, for which it is difficult to find comparable open companies-analogues and, accordingly, it is impossible to use the CAPM model.
When using the cumulative method, the risk-free rate is taken as the basis, to which is added the risk premium for investing in closed companies. This premium represents the return that the investor "requires" as compensation for non-systematic risks - that is, the additional risks associated with investing in this company compared to risk-free investments.
In general, the cumulative construction model looks like this:
where Re is the rate of return required by the investor;
Rf is the risk-free rate of return;
Сi – additional premiums (allowances) for specific risks
Thus, in the process of applying the cumulative method for calculating the discount rate, it is necessary to identify and quantify the largest possible number of types of risks inherent in a given company.
The following risk premiums are most often taken into account:
Dependence of the company on a key figure and the presence of a management reserve - allowances are set from 0% to 5%.
Company size. (0-5%). If the company is large, occupies a monopoly position, then the specific risk will be minimal (equal to zero).
The financial structure of the company. - capital structure. (0-5%). High risk is characterized by a significant share of borrowed funds.
Commodity and territorial diversification (0 - 5%)
Diversification of buyers of the company's products and suppliers of products and services (0 - 5%).
Availability of data on the financial condition of the enterprise in dynamics relative to the financial condition of the enterprise (0 - 5%).
The appraiser decides to what extent to include the above risks in the calculation of the rate of return.
Aggregate method for calculating the discount rate
Most often, in investment calculations, the discount rate is defined as the weighted average cost of capital (WACC), which takes into account the cost of equity (equity) capital and the cost of borrowed funds. This is the most objective method for determining the discount rate. At the same time, a capital assets pricing model (CAPM) is used to determine the cost of equity. Determination of the discount rate for everything invested is associated with the calculation of the present value of the so-called "debt-free" cash flow, often used by investors looking at the amount of cash flow generated by a company. To calculate it, the value of the cost of capital used by the company to finance its activities is used. Since both equity and borrowed funds are involved in such financing, the Weighted Average Cost of Capital (WACC) acts as the value of the “total” cost of capital. The weighted average cost of capital is calculated using the well-known formula:
Ks - the cost of raising equity capital,
Kd - the cost of borrowing capital,
Ws and Wd - shares of own and borrowed capital, respectively, in the capital structure of the enterprise,
T - income tax rate.
It is clear that the profitability of a new investment project must be higher than the value of WACC, otherwise it makes no sense to implement it, since it will reduce the overall value of the company. Therefore, it seems logical to use WACC as a discount rate.
The two main problems with using WACC as a discount rate are that:
WACC reflects the present value of the aggregate of sources used to finance a company's normal capital investments and, when outside the organization's usual activities, investments are exposed to completely different risks than "normal", and therefore WACC cannot be used as a required rate of return, so how it does not take into account the difference in risks of different investments;
If the scale of investment is so large that it significantly changes the structure of the company's financial sources, then WACC cannot be used as a discount rate either.
But even if we are talking about "ordinary" capital investments, then in this case, investments may involve a different degree of risk. For example, capital investments associated with the replacement of equipment, as a rule, are less risky than investments made with the aim of developing new types of products. When evaluating economic efficiency in this case, one can consider the company's weighted average cost of capital as the minimum allowable value of opportunity costs, increasing the required rate of return depending on the nature of capital investments. Thus, in this case, in determining the discount rate, expert estimates are used, which also introduces an element of subjectivity into this process.
Method of industry average return on assets and capital
The DuPont model or the industry average return on assets and capital method reflects the industry's average return on assets or capital invested. To evaluate this method, ROA (Return of Equity) and ROE (Return of Assets) indicators are used, which contain all the risks inherent in the industry of the company being valued. Therefore, the main condition for applying the DuPont model is sufficient information about the state of the industry. DuPont's model has the following form:
To calculate the discount rate, the method of industry-average return on assets and capital is advantageous to use when the shares are not quoted on the stock exchange, i.e. are the least marketable. They do not reflect the true, market value of the company.
When using the DuPont model, companies in the industry are usually divided into certain groups, for example, into small, medium and large companies in terms of equity capital.
The indicators calculated for a particular company are compared with industry averages. Information on ROE and ROA indicators for the industry can be obtained from industry-average reviews of analytical agencies, from various industry ratings.
Market multiplier method
This method is used when there is sufficient information about analogues. It consists in calculating different levels of earnings per share. For example, allocate:
EBITDA/P -- Earnings before Interests Taxes, Depreciation and Amortization (Earnings before depreciation, interest and taxes per share);
EBIT/P -- Earnings before Interests Taxes (Earnings before interest and taxes per share);
EBT/P- Earnings before Taxes (Earnings before taxes per share);
E/P -- Earnings ( Net profit per share).
The advantage of using market multiples as the discount rate is that market multiples fully reflect industry risks. The disadvantage is that the multiples do not reflect the risks that are unique to the company being valued.
Determining the discount rate by expert means
The easiest way to determine the discount rate, which is used in practice, is to establish it by expert means or based on the requirements of the investor. It should also be noted here that the discount rate used in the calculations is almost always agreed upon with the investment bank that raises funds for the project or with the investor. At the same time, in calculations, as a rule, they are guided by the risks of investing in similar companies and markets.
Real options method
Now more and more often it is proposed to use the method of real options, but its application is very difficult in terms of methodology. To take into account such risk factors as the possibility of stopping the project, changing technology, losing the market, when evaluating projects, practices often use highly inflated discount rates - 40--50%. There is no theoretical justification behind these figures. The same results could be obtained by complex calculations, in which one would still have to subjectively determine a lot of predictive indicators.
The choice of the correct value of the discount rate should, of course, be based on the main theoretical approaches to its determination. However, art financial analyst valuation of a business lies in its ability to take into account both the characteristic features of a particular project and the actual conditions of the transaction (the nature and form of "payment" for future economic benefits acquired by an investor or creditor, its opportunity costs, etc.). As a result, the additional effort spent on working through these nuances will provide the analyst who performed them with a stronger position when negotiating the transaction price with a future investor.
The cumulative construction model is suitable for calculating the discount rate when the purpose of the valuation implies a more significant role of internal factors than external ones. The cumulative construction model can be most successfully applied in any case when evaluating equity. The choice of calculation does not depend on the market activity of the company.
The CAPM model assumes a strong influence of market factors, so it is effective to use it when the company's market activity is high, as well as when the company enters the market. The CAPM model is the most limited for calculation, because it is influenced by the maximum number of factors. It can only be used to assess equity, to assess a company whose shares are listed on the stock exchange, and also if the company's performance is typical for the market as a whole.
The determining factor in choosing the WACC model is the assessment of the investment and insurance value of the company or project. The WACC model is a universal model for evaluating invested capital. The calculation of the discount rate by this method is also influenced by the behavior of the company in the market.
The market multiplier method is used when a company is open to the market, because multipliers fully reflect industry risks. It is beneficial to use it when there is sufficient information about analogues. It consists in calculating various types of earnings per share. The method of market multipliers is most successfully applied when the company's market activity is high and with typical behavior in the market.
The method of industry-average return on assets and capital (ROA, ROE) is advantageous to use when shares are not listed on the stock exchange, i.e. are the least marketable. The indicators calculated for a particular company are compared with industry averages. The method of industry average return on assets and capital (ROA, ROE) does not depend on market activity, but can only be used to assess equity and if the company's performance is typical for the market as a whole.
The method of % rates is effectively applied in the assessment of the total invested capital, when the company's activity is typical for the industry. The advantage of this method is that the return on invested capital is determined by the market itself. Because there may be several purposes of assessment, then the further choice of calculation can be determined depending on the characteristics of the company and the availability of information. It is effective to use the % rate method when calculating the discount rate for assessing invested capital, since % rates are set by banks based on the market's need for free cash at the moment, and they take into account only market risks and do not take into account risks specific only to the company being valued. An analysis of existing methods for calculating the discount rate both in Russia and abroad allows us to conclude that it is impossible to choose any one model as the most effective and suitable for all market situations. An effective model is chosen depending on the specific purpose of the assessment and on the characteristics of a particular company, as well as depending on the availability of information.
Calculation of the discount when issuing a bill
When calculating the discount, the drawer issuing his own bill of exchange takes into account:
The period until which the bill cannot be presented for payment (ie, during what period the drawer can use the funds raised from the issue of the bill);
The cost of resources (% rate) at which the drawer raises (could attract) the same amount of money for the same period.
If the contract between the drawer issuing his own bill and the future bill holder establishes the selling price of the bill, then in order to calculate the discount, it is necessary to determine the nominal (bill) value of the bill. This can be done using the formula:
wherein:
Promissory note term – the number of calendar days from the date following the date of issuance of the promissory note to the date of repayment of the promissory note indicated in the text of the promissory note.
It should be taken into account that, as a rule, it is not advisable to issue bills of exchange with a term “at sight” at a discount. After all, such a bill can be presented for payment within a year from the date of issue on any day and it is not possible to determine its period for calculating a reasonable amount of the discount and, accordingly, the yield of such a bill.
The situation for bills of exchange with a term “at sight, but not earlier than a certain date” is approximately the same, but it is still possible to calculate the discount on such a bill based on the period from the date following the date of issue of the bill to this specific date. The procedure for issuing such bills and calculating the discount on them is best determined by the accounting policy.
% rate - the rate of attracting resources for a period similar to the term of the bill. For the calculation, the interest rate is usually used, at which the drawer could attract funds for a specified period. The benchmark may be interbank loan rates, average rates on loans or deposits, the refinancing rate, etc. The procedure for establishing such rates is determined by the drawer in the accounting policy. Banks, as a rule, prescribe the procedure for setting interest rates on attracted and placed resources in accordance with the terms in the Deposit Policy.
Discount policy
Discount policy - the monetary policy pursued by central banks, which consists in raising or lowering interest rates for a loan in order to regulate supply and demand for loan capital.
This type of operation belongs to the long-used methods of regulation. The Central Bank acts as a creditor in relation to business banks. Funds are provided subject to the rediscount of bills of banks and secured by their securities. Such funds received in the central credit link are called rediscount or pawn loans. The Central Bank has the right to manipulate the interest rate at which it issues loans to banks. The possibility of establishing the "price" of the loan acts as a method of influencing the credit system.
The level of the "price of credit" determined by the central bank has received in economic science and practice the designation of the official "discount rate"8 (which is otherwise also called discount or pawn).
The loans taken from the Central Bank are provided by banks to other economic entities, but at a higher interest rate. Naturally, the interest rate policy of business banks reflects the changes that the Central Bank makes in the course of its policy. With the help of the interest rate, the Central Bank thus has an indirect effect on the ratio of supply and demand in the capital market.
An increase in the interest rate, i.e. "Rise" in the cost of credit, limits the amount of demand for borrowed resources and reduces the intention of firms to increase investment. A decrease in the rate "cheapens" credit, as a result of which the private sector (households, firms) has an increased desire for investment. This incentive is realized in the form of buying shares, production equipment or building new production buildings. This is the scheme of this mechanism. In real life, the interaction of parameters is, of course, not always so simple.
Of great importance is the function of accounting policy, as the manipulation of the interest rate, which enhances the effect of the use of other regulatory measures of the Central Bank, namely open market operations and the establishment of required reserves. If the effect of one leverage influencing the behavior of an independent commercial bank turns out to be insufficient, then the set of measures taken by the central bank gives it the opportunity to achieve its intention.
With regard to Russia, it should be noted that, within the framework of the accounting policy, the Central Bank began to practice in 1995 also a pawnshop loan secured by securities (mainly government treasury bonds).
Sources and links
vipoteku.ru - an information and reference resource that tells about the possibilities of a mortgage transaction
malb.ru - site about small business
dic.academic.ru - Dictionaries and encyclopedias on Academician
ekoslovar.ru - economic dictionary
coolreferat.com - a collection of abstracts
xreferat.ru - a collection of abstracts
en.wikipedia.org - the free encyclopedia Wikipedia
operbank.ru - site about banking operations
allbest.ru - a collection of abstracts
do.gendocs.ru - Lessons, reference books, abstracts
center-yf.ru - Financial Management Center
km.ru - information multiportal
delovoymir.biz - Business World website
financial-exchange.rf - portal Financial exchange
What is a discount? Discount is a broad concept that refers to economic activity and translated from English means discount. In different areas of activity, the discount can apply different values:
- on the stock exchange, this concept means the difference between the nominal and market value of a bond;
- in banking, this is a decrease in the price of collateral in favor of the bank when applying for a loan;
- in trade, this may mean a discount on goods with prolonged delivery times, if the goods do not meet the requirements or are not in great demand, and similar discounts;
- in other areas, it can be any commercially advantageous discount.
In general, a discount is a difference in price that arises due to some circumstances. The discount can be fixed, cumulative or depend on the quantity of the purchased goods. There may also be other factors affecting its size.
When obtaining a loan, collateral is required, which will secure it if the borrower does not repay the loan. The discount in this case is the difference between the loan amount and the loan amount.
A discount that differs from the real price of the collateral is called the collateral ratio, and often its presence in the conditions of obtaining a loan causes great indignation among borrowers, because in this case the valuation of the property owners is not equal to the bank one.
In this case, the discount acts as insurance for a bank or other financial institution. With it, he reduces the likelihood of a shortage of funds to pay off the debt in the event that he has to sell the mortgaged property. In many respects, this practice is associated with a large number of non-payments on loans and delays.
At the same time, even if an independent appraiser evaluated the collateral at a market price, it is far from certain that it will be possible to obtain a loan for this amount. Some banks take a deposit only taking into account the discount, and its size is also set by the bank, and sometimes the discount reaches half the value of the property. This is done so that in case of non-payment of the debt, the proceeds from the sale of the pledged property could cover not only the amount of the loan, but also the interest on it, as well as possible legal or similar costs of recovery. Also, the size of the discount depends on the type of property, how long it has been used and other similar factors.
Such a system is very convenient for banks, but consumers of loans often do not like the provision of discounts, because counting on one amount, you can get much less.
The concept of discount, which is used in the stock exchange, is very similar to that used in the banking sector. Both there and there, the borrower is supposed to make a profit. The discount provided at a discount is the difference between the selling price and the market value of a security.
The borrower provides a bond at a price below the market price. When buying a security, a sale and purchase agreement is concluded, which indicates that after a specified time, the borrower is obliged to sell the bill at the market price. Thus, he will receive income, which is the difference between buying and selling, and this difference is equal to the amount of the discount.
Moreover, the receipt of profit does not depend on the time of use of the security. If the borrower does not buy it back after a set time, then the lender loses almost nothing, he has every right to sell it to a third party. The only but - is the volatility of prices in the securities market. On different days, bills can cost differently, and yet small financial losses are possible.
In trade, a discount is used when it is necessary to sell stale or seasonal goods. It could also be a marketing ploy. In any case, the seller expects to increase his profits.
Although the product is sold at reduced prices, but at the same time, the seller can attract new buyers and make more profit if he sold it without a discount. So, many stores can periodically make discounts, and then return the market price. The buyer, out of habit, will continue to buy the product even after the price rises.
Also, a discount is a good opportunity to increase interest in a new or previously unclaimed service or product. Stores can hold seasonal sales, for example, in the spring to sell off the remnants of winter clothing, which also increases revenue. It's better to sell low than not sell at all.
Also, a discount can be provided both for each unit of goods, and for the accumulative system. For example, if the customer purchased a certain amount of goods, or purchased for a certain amount, or in the case of a wholesale purchase. Conditions may be different, and the parties agree among themselves.
Discount in everyday life
Consider what a discount is on a simple example. The supplier has a product in stock that for some reason has not been sold. To ensure that the product does not stale or if it is seasonal and quickly loses its relevance, the supplier offers it to its customers at a significant discount. This can be observed during the sales season in shopping malls. Most often, clothing and footwear fall under such discounts, less often Appliances or electronics.
Many network companies have their own discount stores, where their goods are sold at discounted prices. At the same time, they should not be confused with second-hand stores or outlets that sell low-quality goods. It can be a company store that, before the release of a new collection, sells the remnants of the old one at a significantly reduced price.
AT modern world The concept of discount is very widespread and everyone has come across it in one form or another. Despite the price reduction, in this way they increase sales and attract new customers.
Only lovers will survive
Features of advertising aimed at children
retouching old photos in photoshop retouching old photos
What is an NPO: decoding, definition of goals, types of activities Does a non-profit organization have the right
Gleb Nikitin First Deputy