Market capitalization of construction companies: the specifics of the valuation of assets and liabilities within the framework of the cost approach

Abstract

The market capitalization of a company should be viewed as a strategic indicator of economic growth. The assessment of the market capitalization of an enterprise entails the application of three standard approaches, including the cost approach based on the assessment of assets and liabilities. The application of the net asset method in the valuation process provides for the adjustment of balance sheet indicators; assets and liabilities obtain market valuations. Adjusted net assets can reflect the investment attractiveness of companies, having significant amounts of work in progress, substantial profitability fluctuations, which fully applies to the construction industry. Accounts receivable and accounts payable are part of the monetary relations of an enterprise; they have a specific circulation pattern, that predetermines the methodological problems of their market valuation. This article explores possible approaches to adjusting the book value of receivables and payables, suggests corrective factors, including the time period for debt repayment, financial capabilities of an enterprise. Proposed approaches to the discount rate are to take into account the time factor. A system of indicators and a methodology for adjusting overdue debts are proposed to assess the financial condition of the debtor.