Methodology for the Economic and Financial Valuation of Companies in Inflationary Contexts: Case Study of Productos EFE, S.A.

Abstract

The objective of this study is to introduce a methodological proposal designed to evaluate the economic and financial performance of Productos EFE, S.A. within the context of Venezuelan inflation. This is particularly challenging due to limited access to economic information from governmental entities and the absence of precise data concerning the profitability of companies or comparable entities in this specific economic landscape. A feasible project-type research was conducted, with a documentary design and a descriptive level adopting a quantitative approach. The findings reveal that the proposed methodology, based on the Discounted Cash Flow (DCF) method and applied in both Bolivar and US dollar currencies, using the Garay and Gonzalez (2015) adapted Capital Asset Pricing Model (CAPM) for the Venezuelan economic context, produces highly consistent results. This is particularly evident when adjusting the cost of capital in local currency (Bolivars) for the differential inflation. The logical coherence of the methodology is demonstrated by estimating cash flows denominated in taking into account the weighted average prices by category, applying annual growth corresponding to inflation in US dollars, thus capturing expected inflation. The contribution of this work represents a technical tool that enables the valuation of companies, taking into account various macroeconomic variables to which the entity is exposed to the economic and financial effects generated by the macroeconomic crisis. This facilitates the construction of scenarios in which the entity could potentially position itself in the future.