VALUATION OF INVESTMENTS IN SMALL BUSINESSES USING THE MODIFIED DCF WITH MONTE CARLO METHOD (CASE STUDY: OSENG BALAYAR)

• Main Author: Muaffi Wikan, Hasnan
• Format: Theses
• Language: Indonesia
• Subjects: Manajemen umum
• Online Access: https://digilib.itb.ac.id/gdl/view/80777
• Institution: Institut Teknologi Bandung

MSMEs (Micro, Small, and Medium Enterprises) are important drivers of economy, especially in developing countries such as Indonesia, where it employs 97% of the country’s workforce. Despite the field showing promising potential, especially for online marketplace-based businesses, even in the face of the pandemic, MSMEs still need to invest in the business in order to see further sustained growth. And yet, where some kinds of investments are easy to judge the effects thereof, such as the jump in sales experienced after a successful influencer marketing campaign, other investments, such as investments in operational tools, are much harder to judge. Oseng Balayar is one such MSME who struggles to see the effects of their investments in the business, and thus judge whether these investments will prove valuable or not. Oseng Balayar is a small business in the food and beverages industry, selling frozen food consisting of regional specialty stir-fries, leveraging that uniqueness as a value proposition. Not only Oseng Balayar is able to make a profit, but it also participates in conserving the cultural heritage of Indonesia. But, Oseng Balayar has experienced a decline in sales after its great start in 2021. It has made some investments, such as a presto machine, to improve its situation, but it is lacking tools to predict the effects and the value of that investment. Valuation tools such as DCF (discounted cash flow) and market multiples can be used to predict a value of an investment, but these tools are illsuited for MSMEs, having characteristics that are very different compared to established firms in a big industry. Thus, a method to measure projected value of an investment that is fitting for MSMEs, and a method to measure risk of an investment that is fitting for MSMEs, are required. The Balanced Scorecard framework is used in this research, a combination of financial and non-financial measurements. For financial measurements, a method of valuing investments for MSMEs, the Modified DCF with Monte Carlo, is proposed. The Monte Carlo method is integrated into DCF to simulate risk, and possible risks are quantified using the Probability-Severity Matrix commonly found in the Kepner-Tregoe method. For non-financial measurements, lists of goals according to customer perspective, internal business perspective, and learning & growth perspective are listed, and the fitting measures that shows whether an investment is successful or not according to each goal are also listed. Using Oseng Balayar as a case study, the value of investments in a small business is to be predicted with the Modified DCF with Monte Carlo method. The Monte Carlo method simulates risk using its standard deviation input, which will be provided by the overall weight of the risk of the investment that was calculated using the Probability-Severity Matrix. The investments to be valued are a presto machine and a walk-in store. With the presto machine investment, it is found that the investment has a value of Rp2,301,744.35 when using average risk, and Rp1,466,557.76 when risk is minimized. Meanwhile, the walk-in store has a value of Rp58,973,945.26 when using average risk. If the business is looking to minimize risk as much as possible, they can look to use the simulation results of Rp26,599,298.25. In other words, the business should not pay more than these values to acquire these investments, according to the risk amount that the business is comfortable with. As for the non-financial measurements, the presto machine investment is recommended, while the walk-in store investment is recommended with a caveat that a marketing investment needs to be done as well.