Explore an empirical method to isolate passive appreciation

BVWireIssue #162-1
March 2, 2016

A stumbling block in splitting out active versus passive appreciation of business assets in a divorce context is determining the method to use. Ashok Abbott (West Virginia University) has written a new paper that presents an initial exploration of economic environment determinants of business performance, which illustrate that the passive component of business performance is very significant.

Data analysis: In his research, Abbott provides practice-ready examples across several industries. One industry he analyzes is the grocery business. In examining economic data from 1992 to 2014, Abbott finds that there is a very significant relationship between the level of growth in population and the level of inflation and sales of groceries. Income, interest, and debt service levels do not appear to have a significant impact on grocery consumption. His analysis shows the aggregate impact of changes in population and inflation level accounts for 88.38% of the change in grocery sales. Of course, this is significant information if you’re valuing a grocery business caught up in a divorce.

Abbott will explain his methodology in an upcoming webinar, Active and Passive Appreciation: An Empirical Method for More Accurate Determination, on March 8.

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