Expert Valuation in Insolvency Proceedings: A Monte Carlo Simulation Analysis

This master's thesis deals with the issue of expert business valuation in insolvency proceedings, specifically within the reorganization process. The main objective of the thesis is to verify the realism of a submitted expert valuation report based on a traditional deterministic discounted cash flow (DCF) model, using the specific case of SKD Bojkovice s.r.o., and to exactly determine the probability of achieving the declared value. The theoretical part defines the limits of classical valuation standards for companies in distress and introduces stochastic methods of risk analysis. The practical part then critically analyses the expert's approach and transforms their static model into a stochastic environment. Through a Monte Carlo simulation of 30,000 iterations and a two-factor sensitivity analysis, the impact of key value drivers and their volatility on the resulting investment value of the company is examined. The simulation results clearly demonstrate that the deterministic approach fatally underestimates the asymmetric risks associated with the stigma of insolvency (a phenomenon known as the flaw of averages). The mean value of the company dropped by more than CZK 41 million compared to the original expert valuation. The probability of reaching the value predicted by the expert (CZK 308.5 million) is less than 40 %, while in more than a third of possible future scenarios, there is a risk of the value falling below the level of immediate liquidation. The thesis thus confirms that relying on static point estimates is highly risky from the perspective of creditors and potential investors and recommends the integration of probabilistic modelling into standard insolvency valuation practice, predominantly via legislative amendments to the Insolvency Act.