Preface

Acknowledgments

Introduction

Chapter 1. Overview of Business Valuation

    LEARNING OBJECTIVES
    INTRODUCTION
    A BRIEF WALK DOWN MEMORY LANE
    WHY ARE BUSINESSES VALUED?
    WHO VALUES BUSINESSES?
    PROFESSIONAL VALUATION ORGANIZATIONS
    CONCLUSION

Chapter 2. Business Valuation Standards

    LEARNING OBJECTIVES
    INTRODUCTION
    AICPA STATEMENT ON STANDARDS FOR VALUATION SERVICES NO. 1
    VS SECTION 9100
    AICPA STATEMENT ON STANDARDS FOR CONSULTING SERVICES
    ASA STANDARDS
    UNIFORM STANDARDS OF PROFESSIONAL APPRAISAL PRACTICE
    NACVA
    GLOSSARY OF BUSINESS VALUATION TERMS
    CONCLUSION

Chapter 3. Getting Started LEARNING OBJECTIVES

    INTRODUCTION
    LEARNING ABOUT THE ENGAGEMENT
    DECIDING WHETHER TO ACCEPT THE ENGAGEMENT
    ENGAGEMENT LETTERS
    THE FIVE STEPS OF A VALUATION ASSIGNMENT
    ENGAGEMENT LETTER CONSIDERATIONS FOR LITIGATION REPORTS
    THE INITIAL DOCUMENT REQUEST
    USING A STANDARD CHECKLIST
    SETTING UP MULTIPLE CHECKLISTS
    CONCLUSION

Chapter 4. Valuation Principles and Theory

    LEARNING OBJECTIVES
    INTRODUCTION
    PRINCIPLES OF VALUATION
    STANDARDS OF VALUE
    HOW THE PURPOSE OF THE VALUATION INFLUENCES THE STANDARD OF
    VALUE
    SUBSEQUENT EVENTS (KNOWN OR KNOWABLE)
    IRS INFLUENCE ON BUSINESS VALUATIONS
    CONCLUSION

Chapter 5. Data Gathering

    LEARNING OBJECTIVES
    INTRODUCTION
    WHAT ITEMS AFFECT VALUE?
    INTERNAL INFORMATION
    EXTERNAL INFORMATION
    THE ON-SITE INTERVIEW
    CONCLUSION

Chapter 6. Data Analysis

    LEARNING OBJECTIVES
    INTRODUCTION
    ECONOMIC ANALYSIS 
    INDUSTRY ANALYSIS 
    SUBJECT COMPANY ANALYSIS 
    SWOT ANALYSIS
    FINANCIAL ANALYSIS
    FINANCIAL STATEMENT ADJUSTMENTS
    NONCONTROLLING INTEREST VALUATIONS
    CONCLUSION

Chapter 7. Statistics for Valuation and Economic Damages

    LEARNING OBJECTIVES
    INTRODUCTION
    POPULATION AND SAMPLE: DESCRIPTIVE AND INFERENTIAL STATISTICS
    DISCRETE AND CONTINUOUS VARIABLES 
    FREQUENCY DISTRIBUTIONS AND MEASURES OF VARIATION
    CENTRAL TENDENCY (MEAN, MEDIAN, MODE, AND SO FORTH)
    VARIATION
    PROBABILITY 
    CORRELATION 
    LET’S DO SOME NUMBER CRUNCHING 
    BE CAREFUL NOT TO DRINK THE STATISTICS KOOL-AID: THIS STUFF CAN BE
    MISLEADING
    CONCLUSION

Chapter 8. Developing Forecasts for Business Valuations and Economic Damages

    LEARNING OBJECTIVES
    INTRODUCTION
    FORECAST VERSUS PROJECTION
    MANAGEMENT’S FORECAST
    FACTORS TO CONSIDER WHEN EVALUATING MANAGEMENT’S FORECAST
    PREPARING THE FORECAST
    THE SALES FORECAST
    PROJECTING SALES FOR A NEW BUSINESS
    COST OF GOODS SOLD
    OPERATING EXPENSES
    DEPRECIATION AND CAPITAL EXPENDITURES
    INTEREST EXPENSE AND BORROWING NEEDS
    BALANCE SHEET FORECAST
    APPLICABLE STANDARDS FOR FORECASTS IN BUSINESS VALUATION AND
    ECONOMIC DAMAGE ASSIGNMENTS
    COURT ACCEPTANCE
   CONCLUSION

Chapter 9.The Market Approach—Part I

    LEARNING OBJECTIVES
    INTRODUCTION
    GUIDELINE PUBLIC COMPANY METHOD 
    USING VALUATION MULTIPLES
    VALUING INVESTED CAPITAL INSTEAD OF EQUITY
    ADVANTAGES OF USING THE GUIDELINE PUBLIC COMPANY METHOD
    DISADVANTAGES OF USING THE GUIDELINE PUBLIC COMPANY METHOD
    CONCLUSION

Chapter 10. The Market Approach—Part II

    LEARNING OBJECTIVES
    INTRODUCTION
    MERGER AND ACQUISITION (TRANSACTION) METHOD
    TRANSACTION ANALYSIS 
    LET’S GET BACK TO VALUATION THEORY 
    INTERNAL TRANSACTIONS 
    INDUSTRY METHOD 
    CONCLUSION

Chapter 11. The Asset-Based Approach

    LEARNING OBJECTIVES
    INTRODUCTION
    COMMON APPLICATIONS OF THE ASSET-BASED APPROACH
    ADVANTAGES AND DISADVANTAGES OF THE ASSET-BASED APPROACH
    VALUATION METHODS
    WORKING WITH OTHER APPRAISERS
    HOW TO LOCATE AND RECOGNIZE SPECIALISTS
    CONCLUSION

Chapter 12. The Income Approach

    LEARNING OBJECTIVES
    INTRODUCTION
    VALUE IS FROM AN INVESTOR’S VIEWPOINT
    ADVANTAGES AND DISADVANTAGES OF THE INCOME APPROACH
    SELECTING BENEFIT STREAMS
    USING PRETAX OR AFTER-TAX INFORMATION
    VALUING INVESTED CAPITAL INSTEAD OF EQUITY
    USING CASH FLOW INSTEAD OF EARNINGS 
    DEFINING CASH FLOW 
    FORECASTING FUTURE BENEFIT STREAMS
    INCOME APPROACH METHODS
    CONCLUSION

Chapter 13. Discount and Capitalization Rates

    LEARNING OBJECTIVES
    INTRODUCTION
    DISCOUNT RATES
    CAPITALIZATION RATES
    DERIVING DISCOUNT AND CAPITALIZATION RATES APPLICABLE TO NET
    INCOME DIRECTLY FROM THE MARKET
    BACK TO THE REAL WORLD
    CONCLUSION

Chapter 14. Premiums and Discounts (Valuation Adjustments)—Part I

    LEARNING OBJECTIVES
    INTRODUCTION
    TYPES OF DISCOUNTS 
    LEVELS OF VALUE
    VALUATION ADJUSTMENT—CONTROL PREMIUM 
    LACK OF CONTROL (NONCONTROLLING) DISCOUNTS
    DISCOUNT FROM NET ASSET VALUE 
    DISCOUNT FOR EMBEDDED CAPITAL GAINS
    CONCLUSION

Chapter 15. Premiums and Discounts (Valuation Adjustments)—Part II

    LEARNING OBJECTIVES
    INTRODUCTION
    DISCOUNT FOR LACK OF MARKETABILITY (ILLIQUIDITY) 
    PRIVATE-COMPANY DISCOUNT 
    KEY-PERSON DISCOUNT 
    BLOCKAGE DISCOUNT
    OTHER PREMIUMS AND DISCOUNTS 
    APPLICATION OF VALUATION ADJUSTMENTS 
    CONCLUSION

Chapter 16. Revenue Ruling 59-60

    LEARNING OBJECTIVES
    INTRODUCTION
    REVENUE RULING 59-60 
    CONCLUSION

Chapter 17. The Valuation Report

    LEARNING OBJECTIVES
    INTRODUCTION
    COMPONENTS OF A VALUATION REPORT 
    TYPES OF VALUATION REPORTS 
    PREPARING THE BUSINESS VALUATION REPORT
    DEFENDING THE BUSINESS VALUATION REPORT 
    THE REBUTTAL REPORT

Chapter 18. Valuation of Pass-Through Entities

    LEARNING OBJECTIVES
    INTRODUCTION
    WHAT IS AN S CORPORATION? 
    KEY COURT CASES 
    SO, WHERE DO WE GO FROM HERE? 
    VALUATION ISSUES 
    SOME NEWER THOUGHTS ON THE ISSUE
    OTHER PASS-THROUGH ENTITIES  
    CONCLUSION

Chapter 19. Valuation in Financial Reporting

    LEARNING OBJECTIVES
    INTRODUCTION
    BACKGROUND OF VALUATION IN FINANCIAL REPORTING 
    FASB ASC 820, FAIR VALUE MEASUREMENT 
    FASB ASC 805, BUSINESS COMBINATIONS 
    FAIR VALUE MEASUREMENTS IN IMPAIRMENT TESTING 
    WHEN TO TEST FOR ONGOING IMPAIRMENT 
    DEVELOPING BEST PRACTICES IN VALUATION FOR FINANCIAL REPORTING 
    THE APPRAISAL FOUNDATION
    AICPA 
    WORKING WITH THE CLIENT’S OUTSIDE AUDITING FIRM
    THE MANDATORY PERFORMANCE FRAMEWORK
    IDENTIFICATION OF INTANGIBLE ASSETS FOR FINANCIAL REPORTING 
    CONCLUSION

Chapter 20. Valuing Intangible Assets: An Overview

    LEARNING OBJECTIVES
    INTRODUCTION
    WHAT IS INTELLECTUAL PROPERTY?
    CONDUCTING A VALUATION OF INTANGIBLE ASSETS 
    WHAT IS A RUL ANALYSIS?
    WHAT IS A REASONABLE ROYALTY RATE AND WHERE DO I GET THIS STUFF? 
    WHAT IS AN AMORTIZATION BENEFIT?
    HOW ABOUT SOME MORE EXAMPLES
    CONCLUSION

Chapter 21. Estate and Gift Valuations

    LEARNING OBJECTIVES
    INTRODUCTION
    PENALTIES FOR UNDERVALUATION ON ESTATE AND GIFT TAX RETURNS 
    2006 PENSION PROTECTION ACT 
    REVENUE RULING 59-60 
    CHAPTER 14 GUIDELINES 
    CASE LAW 
    THE VALUATION REPORT 
    THE FLP VALUATION 
    AS VALUATION ANALYSTS, DO WE GO FOR THE BIG DISCOUNTS? 
    CONCLUSION

Chapter 22. Divorce Valuations

    LEARNING OBJECTIVES
    INTRODUCTION
    THE ROLE OF THE VALUATION ANALYST 
    DEFINITION OF VALUE 
    VALUATION DATES
    VALUATION METHODS 
    VALUATION AS OF A SPECIFIC DATE 
    DATA GATHERING AND ANALYSIS
    THE VALUATION PROCESS 
    NORMALIZING THE FINANCIAL STATEMENTS 
    EXPLAINING THE VALUATION 
    REACHING A CONCLUSION OF VALUE 
    DIVORCE VALUATIONS OF PROFESSIONAL PRACTICES
    PERSONAL GOODWILL IN GENERAL
    NONCOMPETE AGREEMENTS
    VALUATION OF OTHER MARITAL ASSETS 
    PASSIVE VERSUS ACTIVE MARITAL ASSETS
    CONCLUSION

Chapter 23. Professional Practice Valuations

    LEARNING OBJECTIVES
    INTRODUCTION
    WHY ARE PROFESSIONAL PRACTICES VALUED?
    CHARACTERISTICS OF THE PROFESSIONAL PRACTICE
    PROFESSIONAL PRACTICE VERSUS OTHER BUSINESS VALUATIONS 
    THE VALUATION PROCESS 
    VALUATION CALCULATIONS—UNIQUE ASPECTS OF THE CALCULATIONS 
    RULES OF THUMB
    CONCLUSION

Chapter 24. Ownership Disputes

    LEARNING OBJECTIVES
   INTRODUCTION
   DISSENTING SHAREHOLDER MATTERS
   OPPRESSED SHAREHOLDER MATTERS
   FAIR VALUE
   THE VALUATION DATE 
   FAIR VALUE METHODOLOGY
   CONCLUSION

Chapter 25. Other Valuation Assignments

    LEARNING OBJECTIVES
    INTRODUCTION
    STOCK OPTIONS
    VALUATION OF OPTIONS
    BLACK-SCHOLES-MERTON OPTION PRICING MODEL
    THE BINOMIAL OPTION PRICING MODEL
    WARRANTS
    PREFERRED STOCK
    DEBT SECURITIES
    EARLY-STAGE COMPANIES
    CONCLUSION

Chapter 26. Economic Damages

    LEARNING OBJECTIVES
    INTRODUCTION
    LOST PROFITS
    THE LOST PROFITS ANALYSIS
    CONCLUSION

Chapter 27. My Favorite Court Cases

    LEARNING OBJECTIVES
    INTRODUCTION
    ESTATE OF JOYCE C. HALL V. COMMISSIONER
    ESTATE OF SAMUEL I. NEWHOUSE V. COMMISSIONER
    CHARLES S. FOLTZ V. U.S. NEWS & WORLD REPORT, INC.
    BERNARD MANDELBAUM, ET AL. V. IRS COMMISSIONER
    MAD AUTO WRECKING INC. V. COMMISSIONER
    DELAWARE OPEN MRI RADIOLOGY ASSOCIATES P.A. v. HOWARD B. KESSLER, ET
    AL.
    CONCLUSION