Congratulations to NACVA for its terrific 14th annual Consultants’ Conference last week in Washington, DC. BVWire™ had a full staff covering the sessions. The meeting confirmed the continued growth of the business valuation profession. Many of the attendees were new NACVA members, participating in their first professional meeting in the field. Next year’s meeting is in Las Vegas in June.
And during his session on calculating the cost of equity capital, presenter Rod Burkert, CPA/ABV, polled attendees and found that just about 15% use data from Duff & Phelps Risk Premium Report, compared to the majority still using Ibbotson/Morningstar data. While the gap has narrowed substantially—and speedily (at an AICPA conference just over a year ago, only 2% of attendees used Duff & Phelps data), Burkert offered his own preference. “I’m not here to persuade you, but I can’t recall the last time I submitted a report using Ibbotson alone,” he said, “because most of the companies we value are smaller-sized”—i.e., below $10 million annual revenue.
Plus, using the current Duff & Phelps equity risk premium (4.9%) eliminates two of the most common questions valuation analysts hear: “Did you (or did you not) use Ibbotson’s supply-side equity risk premium?” and “What about Shannon Pratt’s argument that Ibbotson’s is 1.25% too high?” Analysts can also avoid all the questions about whether pre-1955 economic data are reflective of current equity risk premiums. “The flow of tax-advantaged retirement funds and the change of federal management practices [from tax policy to interest rates] are two key factors,” Burkert said, supporting the use of the more contemporary Duff and Phelps data. For more information on the 2007 Risk Premium Report, click here.
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