Business Valuation Update
- How to Review a Report’s Valuation Methodology
- Ideas for Solving Two Problems in the BV Profession
- How Do Your Firm’s Benefits Stack Up?
- Using Rule of Thumb Data to Uncover Cooked Books
Do Maximum Strike Price Lookback (Longstaff) and Other Put Option Models Produce a Marketability Premium or a Discount?
Maximum strike price lookback (Longstaff ) and other put options models are achieving greater acceptance as liquidity components in estimating discounts for lack of marketability. As users of valuation reports demand greater precision and replicability ...
Top BV Experts Field Tough Questions at NACVA ‘Hardball’ Session
Most conference sessions are scripted affairs, but not “Hardball With Hitchner,” one of the most popular sessions at the recent NACVA annual conference in San Diego. This session has become a tradition over the years, and it’s where you get to hear unfett ...
Valuers Run the Risk of Mismatching Inflation Assumptions
During a presentation in the United Kingdom, Nick Forrest (UK Economics Leader for PwC) made some observations that should resonate with business valuers worldwide. In the UK, the Bank of England established its target inflation rate of 2%, but inflation varies hugely from this target, even during noninflationary periods, depending on which factor an analyst uses.
A Reflection on Low Risk-Free Interest Rates
Although business appraisals often do not concern themselves with the details of monetary policies, given the current low-interest-rate environment, it’s useful for appraisers to have a historical perspective, in addition to understanding some of the rele ...
Using a Discounted Cash Flow Methodology in Uncertain Times
A fundamental look at the method taking center stage during the pandemic. This article outlines how the DCF method works and to highlight the nuances and trap doors that will be encountered and must be overcome to reliably apply the method to derive an indication of value that is well reasoned and supportable for the application intended.
Impact of Government Contracts on Subject Company Risk
Companies that generate a large part of their revenues from the federal government have different characteristics than those that don’t—particularly regarding risk factors. BVU asked Dan Golish, CPA/ABV, CVA, CFF, of Skoda Minotti about engagements in thi ...
Market Multiple Adjustments: Get a Grip on GRP
A follow-up of an earlier article that focuses on the attributes of growth, risk, and profitability (GRP) in a benchmark analysis of guideline companies.
Letter to the Editor: Misunderstanding the Butler-Pinkerton Calculator
Wow! I have read many articles and papers on various valuation topics over my 27 years in the valuation arena, but I do not recall ever seeing so much controversy as I have seen written about the Butler-Pinkerton Calculator (BPC).
It’s in There! So What Else Is Included in Your Estimated Cost of Capital?
In a long-running TV ad for spaghetti sauce during the 1980s, a pitchman repeatedly responds to inquiries about the product’s ingredients with the phrase: “It’s in there!” This response might also apply to your estimated cost of capital.
Global BVU News and Trends January 2020
Business valuation news from a global perspective.
Quantifying Company-Specific Risk: A New, Empirical Framework With Practical Applications
In this article, the authors have refined their earlier work1 by providing a detailed example of how to select a company-specific risk premium (CSRP) for a privately held company using benchmark CSRPs derived from guideline publicly traded companies.
The Implied Private Company Pricing Model (IPCPM) Ko = (FCFF1 / P) + g
Editor’s Note: The authors have developed a model designed to be more reliable than the build-up method for estimating the cost of capital of a small privately held business. This model uses the authors’ new Implied Private Company Pricing Line 2.0 (IPCPL ...
Supplement: International Glossary of Business Valuation Terms Redlined Version
Download a sample redlined version of the International Glossary of Business Valuation Terms above.
There is a ‘New’ Beta in Town and it’s Not Called Total Beta for Nothing!
When presenting the Butler Pinkerton Model™ (BPM) at various conferences across the country, we often ask audience members to define beta. Typically, a brave attendee responds that beta, “Measures the volatility of the stock relative to the volatility of ...
Determining a Distressed Debtor Company Discount Rate, Part 1
Financial analysis in contested bankruptcy proceedings often involves distressed business valuation issues. Whether a debtor company was solvent at a particular date is often critical in contested bankruptcy proceedings. The fair value of certain assets o ...
Four Potential Problems When Calculating the S Corp Benefit
Many articles have been written and several models developed in an attempt to properly capture the benefits of being a Sub S—including the method utilized in the Delaware MRI case. There also have been recent discussions questioning the validity of the Su ...
A Fresh Look at Using the Income Approach to Valuing FLPs
When I value minority interests in a family limited partnership (FLP), I will do an income approach, but I will not enjoy it. All too frequently, the FLP does not generate regular distributions or regular profits.
Valuation Q&A: Does Hedging Affect the Valuations of Food Processing Companies?
Editor’s note: Valuation analysts need to understand the concepts of hedging commodity prices so that the valuation conclusion accounts for the risk discount or premium of using hedging as a tool for stabilizing prices for future profitability. During a r ...
Valuation Considerations in High Inflationary Environments
With inflation at its highest level since the Great Inflation, valuation analysts will have to consider macroeconomic factors that have not been present in the U.S. economy in over 20 years.
Income Approach Dominates When Valuing Liabilities, Analysts From Big Four Tell ASA Conference
In valuing debt instruments, the income approach is the first thing to look at “because it forces the analyst to consider factors such as timing of principal and interest payments, credit quality of the issuer, and likelihood of default,” said Bernard Pum ...
Damodaran’s Warning Signs That a ‘Valuer’ Is Becoming a ‘Pricer’
Business appraisers should look carefully at their work to clarify the distinction between pricing and valuing a business or asset. That was one of the key points Dr. Aswath Damodaran (New York University, Stern School of Business) made to an audience (bo ...
The Adjusted Present Value: An Alternative Approach to the Effect of Debt on Business Value
The market value of a business’ assets is equal to the value of its two funding sources, debt and equity. In their seminal work, Modigliani and Miller’s1 Proposition 1 asserts that in a perfect market and ignoring income taxes, the relative amount of deb ...
Help Clients Squeeze the Most Value Out of M&A Synergy
As the economy improves, M&A activity increases. Companies buy other companies because they expect an increase in value triggered by the combination of two firms into a new entity.
Factors in Forecasting Cashflow and Estimating Cost of Capital in Healthcare
It is critical when undertaking the valuation of any company to have a good understanding of the risks associated with the future cash flows. In the healthcare industry today it has never been more important or more difficult to appropriately assess risk ...
Purchase Price Valuations: Does Your IRR Match Your WACC?
When valuing a purchase price acquisition, many reasons might be put forward to explain why the weighted average cost of capital (WACC) doesn’t match the internal rate of return (IRR) generated by the forecast and the price. But Alicia Grosman, a valuatio ...