Claywell: Do not project historical data forward when your valuation date is a “stub year”

J. Richard Claywell, CPA recently wrote in NACVA’s Ambassadors’ QuickRead:

Valuators commonly need to perform a valuation using a “stub year,” or a date other than the company’s year end. This requires forecasting projected future company operations. It’s critical when performing this forecast that valuators not project historical data forward, and instead perform a new assessment for the new year.

In his article “Tips for Valuators,” Claywell provides a real-world example of “a misperformed valuation showing how dramatically this kind of error effects a calculation of net present value.”