Valuation of shares in a bushiban

I am leaving Taiwan after breaking the 10 year mark and, being financially challenged, would appreciate advice from you financial whiz formosans.

I have shares in a school that was started with 2 other partners. We have now grown into three schools of which two show profit and the other breaks even ( Opened September 2004). If I want to sell my shares, what would be a fair price? Taking in consideration that there is no managerial change ( as I have not been involved in that side of the business) and the school continues as is.

If for example the school’s annual profit is
NT$1 000 000 and my share is 20% (NT$ 200 00/year).

Someone suggested
multiplying (20% of yearly profit = NT$ 200 000 ) by five ( five years to get capital back) = NT$ 1 000 000.


I don’t think anyone would be interested in waiting five years to get their capital back!

Is your name on the bushiban and business licenses?

Do you teach in the schools?

How many students does each school have?

What are the rents?

Who are the partners?

Do you have operational control?

What is the breakdown of the students in each school? That is how many students are in the different grades?

How is the income controlled and distributed?

What are the prospects for growth in each school?

Why not just keep the shares? You seem to be getting a pretty good return on your investment; if the return is better than what you could get by investing the money elsewhere (and it looks like it is), I’d just keep it invested here. That is, if you trust your partners.

Interesting situation…

If I remember, we had a similar discussion on buying a school from someone else. Can’t find the thread right now.

But that would help you evaluate the situation as well.

Truly, the information you have provided is too general for us to really provided a specific answer.

Fox’s questions are good ones. Moreover, I’d add:

Are the accounts available for inspection?

Are the partners Taiwanese or foreign?

What is the profit structure of the schools? Rents, staffing, etc…

What is the plan for the third school to break even?

Once these are available for discussion, it might help.

Also, how soon do you need to sell? Do you need to sell? The longer you can wait, the better the chance of getting a good price. If you have to sell soon, you will most likely have to sell at a discount to fair value.


bababa’s right.

Keep your share.

Well, whether you keep your shares or sell them is a personal decision, little to do with finance, I reckon.

The only accurate valuation of a company is DCF. Basically, what is the dividend paid, multiply it up by a growth rate and then discount that at a fair rate of return.

Basically, it boils down to:

Value = Next Year’s Dividend / (fair rate of return - growth rate)

The problem is choosing the assumptions.

Growth rate - a long term rate, unlikely to be much more than GDP, so, let’s say 4%.

What is a fair dividend. Basically, what proportion of profits does not need to be paid out to maintain growth, i.e., what is left over after paying for upkeep of the business and investing in new schools, etc. Let’s assume last year’s profit of NT$1m, payout ratio of 40% (for a business like a school, maybe a much higher payout even.)

last years dividend = 1mn * 0.4 = 400,000
Next year’s dividend = 400,000 * 1.04 = 416,000

Rate of return. What is required to compensate for risk? Say 12%?

Value = 416,000 / (.12-.04) = 416,000 / (.08) = 5,200,000

Your share = 20% = 5.2m * 0.2 = 1,040,000 = NT$1.04m

Try this, altering the assumptions to what you think is right. Unfortunately, you will see a huge difference according to different assumptions. Raise the growth rate from 4% to 6% for example and the value of your share is nearly 1.4mn

Contrary to fox, i don’t think a five year payback is too unreasonable.

If you think all of these methods are converging to a reasonable number, and the assumptions are valid, then you have the answer. ultimately though, you can only work out what you are willing to sell at - what someone else is prepared to pay is another matter.

You may be right IYBF, and I appreciate the lesson. It’s something I’ve always wanted to know how to do well.

But what about this.

Rent= 40,000
Students numbers English only= 60
Anching = 22
Anching teachers = 2
English teacher both Chinese =2
Utilities = 10

English: 60 X 8000 x 3.75
Anching: 22 X 8,500 X 11
Total: 3,857,000

Rent: 40,000 x 12 = 480,000
Wages: 700,000 (anching) + 744,000
Utilites: 120,000
Total: 2,044,000

Profit: 3,857,000 - 2,044,000 = 1,813,000

That business is for sale this week at a grand total of 1.2 million.

And to sweeten the pot the cost includes all the facilities which would cost you double that to buy yourself. If you could just maintain the business you would reap a very nice return.

It seems incredible, but that is the quirky side of the English teaching business. It is difficult to sell a school, because it’s so specialized there are few buyers and people hate to take over someone elses business at the risk of losing students.

What you have missed in your calculation is the opportunity cost of your money in the same business in an alternative scenario, i.e., due dilligence. Also the downside risk in Taiwan is huge in my opinion. So your compensation for risk is way too low and growth potential isn’t determined by money alone it is determined by teacher quality and that is something money cannot buy in Taiwan which is a market for lemons in the English teaching field.

Its all reflected in the required rate of return. My 12% is probably a little low. It would reflect a relatively mature, or secure business. If there is a risk that the teachers leave and the school disappears in a couple of years, you would want that rate to be jacked up towards 30-50%!

I think you are certainly right.

Sure - again, all has to be reflected in the required rate.

The strength of this method is that it is theoretically sound. The weakness is that assumptions require a lot of guess work and are subjective. But hey, so is value.

These business have few assets and those they have (the teachers) are not fixed. So there are indeed risks there.

As they say your assets walk out the door every night and tomorrow they might not come back.