How far have we come since "the last millennium?

There's a beautiful reflection on the advancements in business valuation practice in yesterday's ASA Business Valuation E-Letter.  The comments come from Bill Quackenbush, previous editor of the E-Letter, and frequent instructor in the BV201-204 series:

When I took the ASA income approach course in the last millennia (not really that long ago, but it sure feels like it), a portion of the much more abbreviated material was on developing a cost of capital based upon a review of bands of investment returns.1 Returns were estimated using general descriptions of business risk without documented empirical evidence – an intuitive argument.

To be fair, we did spend time dissecting the components of the build-up method. But there was no discussion of CAPM, market WACCs, alternative methodologies for un-levering and re-levering beta, historical vs. supply-side ERPs, regression of ERP returns for size adjustments, total cost of capital, international cost of capital, WARA, IRR, or other cost of capital issues currently covered in the course materials.

I’ve been teaching the ASA BV courses for a decade now. Our courses have always been considered leading edge and theory-filled. But if any of the students currently practicing BV who took the income course 10 years ago, or even 5 years ago, have not advanced their knowledge or practice beyond that class they are no longer leading edge, they are in the back of the pack. Thankfully, ASAs are required to take continuing education, and every BV-related journal in the profession regularly inclues cost of capital issues. (Consider this a gentle plug for October’s Advanced BV Conference)