BEE Partner, South Africa Economy Watch

BEE Enterprise Net value

The net value is determined by calculating the current market value of the asset in relation to the current market value of the acquisition debt. Where the value of the asset increases in relation to the debt, the net value points will increase. Where the debt is reduced in relation to the net value of the business, then the points will also increase to reflect the increase in the BEE party’s net asset value. On the other hand, where the value of the asset decreases in relation to the capital value of the debt, resulting from increased debt or decreased asset value, the associated points will decrease.

The challenge in the QSE environment is to obtain the current market value of a business every year, although this is an expensive exercise. The Codes do not require the business to obtain an annual external valuation. As long as the valuation is based on an acceptable measurement standard such as price earnings or discounted cash flow, and can be substantiated, the verification agency will accept the valuation. The best way to address the issue of obtaining a current market value is to use an acceptable valuation formula, which most accountants can provide, and to use that formula annually.

Measuring BEE net value

The Codes present fairly complicated formulas for measuring net value. I have broken down the components to make them easier to understand. When trying to understand this measurement follow this line of thought: the deemed net value calculates the BEE party’s debt-free ownership as a percentage of the current value of the business. This is divided by the targeted debt-free ownership as calculated in Formula A and multiplied by the allocated nine points to obtain a pro-rata score. Another formula, Formula B, is applied to limit the score where the targeted ownership of 25% is not achieved.

The objective is to measure and reward debt-free ownership held by the BEE party.

Deemed net value is:

• the current value of the BEE party’s shareholding in the business
• less any outstanding debt originating from purchasing that shareholding
• as a percentage of the current value of the business.

It is best described as the BEE party’s debt-free ownership as a percentage of the current value of the business or the liquidation value of the BEE party’s participation as a percentage of the current value of the business.

Note: The debt referred to throughout the calculation of net value is the debt originating from the purchase of the shares only. Debt originating from borrowing against the value of the shares after purchase is not included in the calculation of net value.

Market value of the equity instrument — Capital balance of the acquisition loan and/or other instrument
Market value of the measured enterprise

A= (B -C) / C

A = the net value to be included in Formula A.

Step 1 Calculate B, the value of the equity instrument held by Black people on the date of measurement.

Step 2 Calculate C, the carrying value of third-party rights against Black people’s economic interest as a result of financing the acquisition of the instrument.

Step 3 Subtract the result of Step 2 from that of Step 1 (the debt-free Black ownership).

Step 4 Calculate D, the current value of the measured enterprise on the date of measurement.

Step 5 Divide the result of Step 3 by the result of Step 4 to obtain the deemed net value (which is the debt-free ownership as a percentage of the value of the business).

to be continued

Possibly related posts: (automatically generated)
BEE Party’s Debt-free Ownership: the Money is under your name

• BEE Party's Debt-free Ownership: the Money is under your name continued
• What is potential Black and White Business Shareholders Roles in Business
• Black Economic Empowerment stands the first to know your Ownership Scorecard
• Attention BEE Partners, Money matters, do you have enough Share of Income?
• Link Exchange
• Substituting Debt Growth for Taxation
• THE JOB GUARANTEE AND THE BUDGET DEFICIT
• Black Economic Empowerment (BEE) once empowered always empowered principle
• BEE Ownership and the Sale of the BEE Assets
• BEE Ownership Compared Other Employee Ownership in the world