Sivitska Yuliia, PhD student, Department of Economics and Management, Poltava state agrarian academy, Poltava, Ukraine

ORCID ID: 0000-0001-8635-9038
e-mail: ijosjo@ukr.net

Valuing Agricultural Enterprise for Investment Purposes: Methodological Aspect

Abstract. Introduction. The production cycle of agricultural enterprises and agribusiness management differs significantly from other sectors. Scientists emphasize significant differences of agrarian sphere from other ones, strong dependence on unpredictable weather changes inherent in it. Also, there is an increased risk of income instability, volatility of agricultural markets and variety of activities that can be conducted in one enterprise. Along with the presence of many risk factors, this area is also characterized by high profitability and it is always attractive to investors. Consequently, there is a need to improve the methodology of agricultural business valuation and the search for the most correct method and methodological approach to determine the value of agricultural business for investment purposes.

Purpose. The purpose of the study is to determine which of the methods of business valuation is the most suitable for objective agricultural business valuation for investment purposes.

Conclusions. The novelty of the article is it proves that a Build-up approach is appropriate for discount rate calculation (in agricultural business valuation for investment purposes). And justification of the fact that Cost of equity capital model (cash flow discounting-based method of business valuation) is acceptable for agrarian business valuation was further developed. As this model provides the most objective information for investors and business owners and is most often used by professionals for valuing a business when investment decisions are necessary. The results show that Income approach, Cash flow discounting method (Cash flow type – Equity cash flow) is the correct methodology for valuing agricultural business for investment purposes.

Keywords: agricultural enterprise valuation, specific company risk premium, cost of equity capital, capital assets pricing model, Build-up method, business valuation, discount rate.

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