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Introduction - The Company in Financial Distress
The valuation of the company in financial distress is a specific area of valuation, which has not been comprehensively analyzed yet. The question of the valuation of companies in time of crisis is partly mentioned in some specialized literature [5] which centers upon the integration of problems of risks and uncertainty into activities concerning the investment decision and the valuation of companies. This integration is possible to carry out by adjusting the cash flows or the discounting rate. Kislingerová [5, p.113-114] points out the very strong optimism in the identification of the cash flow which lies mainly in underestimation of competition, in the need of the optimistic prediction, in distorted understanding of the causations and consequences and in the suppress of the optimistic views and models. The valuation of the next cash flows is necessary to prepare in the form of the variable collection for the different scenarios from the very optimistic to the very negative [5]. It is a very interesting idea because in case of the valuation of the firm the different options of the future estimated discounted cash flows are not taken into consideration. The temporary situation in the world economy concerning the future development is very uncertain and it could be possible to identify the different scenarios of the valuation in dependency on the development of the financial and economic crisis. As it will be later analyzed, in case of the valuation of the firm in financial distress, the reasons of this distress are necessary to take into account. They could be inside the firm, but also outside, caused mainly by the problems of the financial and economic crisis. Economic crisis from the years 2008-2009 may be the important factor influencing the financial prosperity of the company and its possible financial distress. The causes of this crisis could be analyzed and explained in a different way, for example according to Lungová [6].
The problems of the valuation of the company in financial distress are very sporadically solved also in the foreign literature. Damodaran [1] shows two mainly problems occurring in the real valuation process, valuing equity in distressed firm and valuing equity with negative earnings. According to this theory if the firm has substantial...