Valuation of goodwill using weighted average return on assets: assessment of average transport and storage enterprise in the Czech Republic

Abstract

The paper deals with intangible assets - the goodwill of a company and its valuation using the Weighted Average Return on Assets (WARA) method. The paper aims to determine the value of goodwill of an average enterprise in the Transport and Storage sector in the Czech Republic for the period 2016-2020 and then to consider the use and benefits of the WARA method. The data are obtained from the Cribis database of Crif - Czech Credit Bureau, s.r.o. for the period 2016 - 2020; for the paper, an average enterprise in the selected sector was selected, from which the individual items of the financial statements were defined for the preparation of the balance sheet and profit and loss statement. The difference between the income valuation of the company using the net income capitalisation method and the equity valuation was used to calculate the goodwill of the average company, which was then modified using the WARA method. The resulting goodwill value of the average enterprise in the order of hundreds of millions, on the one hand, indicates a long-standing and prosperous enterprise with a sound business name, providing quality services; on the other hand, with such a high value, a possible error in the data can be considered, as the vast data sample provided was difficult to analyse by averaging the data to define the average enterprise in the sector. Further research could be directed again towards the valuation of goodwill by the WARA method, as this research field needs to be strengthened.