When public markets are as volatile, as they are today, appraisers may face the risk of double counting—that is, some may factor in decreased market value first in their calculations of enterprise value and then again in their DLOM determinations.  “Volatility influences both the value of future cash flows and also liquidity,” Lance Hall, ASA, (FMV Opinions, New York City) explained at the recent DLOM Summit.

During periods of increased volatility, investors desire an increased ability to sell, so “it makes sense that cash flows might decrease in an analysis, and discounts might also increase, ” Hall told attendees, adding that this is reflected in Ashok Abbott’s (Business Valuation, LLC, Morgantown, WV) analyses of public markets, which show that volatility reduces price—but also widens the bid/ask spread. What do you think? Drop us a line at bvwire@bvresources.com.