A risk-adequate valuation of Brazilian companies using the example of Arezzo Indústria e Comércio S.A

Whether and to what extent an investor conducts a direct investment depends inter alia on how much the investor assesses the risk of a direct investment. This article examines the risk-adequate valuation of foreign equity investments. Foreign equity investments can be calculat-ed with an investment calculating procedure; however, the final decision regarding the foreign shareholding depends on the investor’s subjective risk assessment. This subjective risk as-sessment may lead to a determination that the investment risk is overvalued or undervalued. Therefore, it is possible that the investor loses opportunities or mistakenly invests. Hence, we will present different objectives and risk-adequate methods to value companies. The risk as-sessment can be performed using previously existing credit rating agencies and insurance company risk assessments, or it can be performed using the theory of international parity rela-tions. This new method is used to evaluate foreign companies. Also it is possible to simulate changes in a foreign equity investment over a long period and using scenarios. This will be performed using the fashion group Arezzo Indústria e Comércio SA in Brazil as the example. The acquired knowledge allows the investor to make an objective and risk-adequate assess-ment of foreign equity investments.