Speakers presented different takes on issues that impact valuation professionals at the recent 14th annual conference of the newly reorganized Southeast Chapter of Business Appraisers held in Atlanta. Here are a few key points:
Economy: When watching key economic factors for signs of new business in the economy, make sure they’re relevant, says Laurel Graefe (Atlanta Federal Reserve). She points out that, while unemployment figures are relevant for purposes of evaluating trends, they don’t accurately measure the level of unemployment in the U.S. The data are collected much the way they were 30 years ago—through telephone surveys.
Statistical tools: Using means and medians are meaningful when the data set is normally distributed, stresses Sherry Smith (Zephyr Financial Corp.), who discussed tools for making better projections. In most cases, however, we deal with data that are not normally distributed and often have no upper bounds. In such cases, the standard deviation is not meaningful and techniques such as Bayesian statistics can be useful, she says.
Pratt’s Stats® began reporting the harmonic mean a couple of years ago in the summary portion of its search results. Lari Masten (Masten Valuation), in her presentation on the market approach, says there are startling results between the arithmetic mean and the harmonic mean.
When using the arithmetic mean instead of the harmonic mean, the value will mostly be higher (potentially overvaluing a company) and not be representative of the market values. This ties into Smith’s point that arithmetic statistical measures such as the mean, median, and standard deviation are based on normal distributions. In the case of a perfectly normal distribution, the arithmetic mean and the harmonic mean will be very close.
Intellectual property: An often overlooked aspect of reviewing intellectual property (IP) is in process R&D. The next generation of intellectual property can be critical to the value of a business, according to Mark Zyla (Acuitas Inc.). The stage of IP R&D heavily impacts the value of technology companies. Companies with IP R&D generally have more value than those without. Zyla says that, in some cases, the value of the IP could exceed the value of the company when IP is underutilized.
We’ll have more on this conference in next week’s BV Wire. Want to attend next year? The 15th Annual Conference is scheduled for September 19-20, 2014, also in Atlanta.