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
15 Tips for Valuing Intellectual Property Using the Multiperiod Excess Earnings Method
Overview. Valuing intellectual property and intangible assets is often a highly technical task. Valuation experts frequently use forms of discounted cash flow (DCF), and more specifically the multiperiod excess earnings method (MEEM), to value many intangible assets such as patents, customer relationships, commercial contracts, brands, franchise agreements, and licences.
Beyond All Comparables: Lessons to Learn From the Kingfisher Airlines Brand Valuation
Recently, India’s Serious Fraud Investigation Office (SFIO) announced it would probe the valuation of the Kingfisher Airlines trademark and whether the trademark was fraudulently inflated to get more funds from banks. The officials of the now-defunct airline, bank representatives, and a corporate finance advisory firm who had valued the brand are being investigated.
Scope of Work: What Constitutes Reasonable Grounds in a Valuation?
One of the most critical areas of professional judgement in a valuation engagement is the extent to which the information is assessed. While judgement is also required in the selection and application of the valuation methodology, in my experience, the major factors for the variance in disputed valuations are different assumptions with respect to the earnings or cash flows adopted and their related growth rates and risk. A properly prepared valuation is one where these assumptions have been based on a sound, appropriate analysis of the available information. But how much analysis is enough?
Ibbotson Associates’ Valuation Report Certification Services
I’m relinquishing my Editor’s Column space in this issue in favor of Christopher Mercer’s article on Ibbotson Associates’ Valuation Report Certification Services.
Build-up vs. CAPM Method
In the Income Approach Example on page 2 of the September BV Update , you show the calculation of a discount rate using the CAPM method. I have several questions about the calculation: 1.
Discount rates based on CAPM don't always lead to minority value
The following quote from the fourth edition of Valuing a Business , contained at page 161 in the chapter titled "The Income Approach: Discounted Future Income Method," apparently has been misconstrue ...
Estate of Jelke is a poor decision for taxpayer
Estate of Jelke, a C corp holding a portfolio of stocks, had these issues before the Tax Court: (1)Amount of discount for trapped-in capital gains (2) Amount of discount for lack of control and (3) Amount of discount for lack of marketability.
Drawing a clear distinction between income and market approaches and methodology
The point of this column is to advocate that income approach methods be distinguished clearly from market approach valuation methods. The valuation profession has (somewhat arbitrarily) classified ...
Critique of attacks on private placement and pre-IPO studies for determining marketability discounts
Two recent articles by John J. Kania, Ph.D., in Business Valuation Review 1 , regarding discounts for lack of marketability contain questionable facts and methodology, and could lead readers ...
Practitioners disagree strongly on excess earnings methodology
In our October 1996 issue I titled my Editor's Column The 'excess earnings' method: how to get a defensible result. We included a questionnaire and solicited reader response. The r ...
Al Rappaport estimates equity risk premium between 3 and 5 percent
Rappaport, Alfred, Creating Shareholder Value, Revised Edition, The Free Press, 1230 Avenue of the Americas, New York, NY 10020, (800) 223-2336, 205 pages, $34.50 postpaid. Just as I was finishing the manuscript of my new book, Cost of Capital-Theory, Measurement, and Applications (scheduled out in April), I received the 1998 Revised Edition of Dr. Al Rappaport’s well-known book, Creating Shareholder Value . I was so struck with what seems to me to be the common ...
Small stock risk premium no myth; size does matter
Until about a year ago, I thought that, on average, the fact that small stocks are riskier than large stocks had been firmly established in the financial community, and that attacks on the "small stoc ...
Delaware Chancery Court reaches huge fair value conclusion - Standard of review is “entire fairness”
A recent decision of the Delaware Chancery Court placed an amazing fair value of $38.05 per share on the stock of Emerging Communications, Inc. (ECM), which was acquired in a two-step going ...
Analysis of nonfinancial matters adds value to appraisal
The perceived value of a middle market company might be several million dollars difference if measured by two different valuation firms based on their individual experience, competence and t ...
2003 in review: many developments in tax and divorce; other BV issues
When I looked back over the 2003 issues of this newsletter, I was surprised at the number and variety of developments significant to the business valuation profession.
Business Valuation Update now available online
We have recently achieved a goal that I regard as a significant milestone in making Business Valuation Update even more timely and useful for our subscribers: the ability to access our publication online. Needless to say, this new feature will be another tool to help efficiently obtain information, and, ultimately, perform better business valuations. Versatile search capabilities Now you can quickly find everything we have ever written about marketability discounts, family limited partnerships, ESOPs, goodwill ...
Congratulations to the ASA and the AICPA on their first-ever National Business Valuation Conference
Held November 13-17 at the Bellagio in Las Vegas, the combined effort brought together most of the leaders of the profession, and approximately 1700 attendees (fewer than wanted to come, since the event sold out early) for several intense days of discussi ...
ASA hosts record-breaking BV conference Many conference papers plus IRS manual added to BVU Online Part 1 or 2 parts
Over 500 business valuation professionals attended the American Society of Appraisers 16th Annual Advanced Business Valuation Conference held October 23-24, 1997, at the Palace Hotel in San Francisco.
Everyone assumes risk free rate is after tax
I can not get an answer as to why when you build up a discount rate, using Ibbotsons or another method, everyone assumes that the risk-free rate is after tax. I can understand how the other ...
New measures of risk that really work!*
I've often said that the greatest challenge for skilled business appraisers is to quantify risk and translate the results into a required rate of return (discount rate). The latest work of Roger Gra ...
New studies quantifying size premiums offer strong cost of capital support
Roger Grabowski is a partner and national director of Price Waterhouse LLP Valuation Services Group. David King is a manager with Price Waterhouse LLP in their Chicago office. This repor ...
Minority v. control discount rate
We are currently trying to find support refuting the argument that discount rates developed by using minority trades in publicly traded stocks result in a minority value. In your book Valu ...
Lower return for control?
This is in response to the article on the first page of the March 2001 BV Update. I prefer to follow a different line of reasoning in thinking about the control premium idea, partly based ...
Examination of Mercers QMDM reveals inadvertent error
In this exchange between Eric Engstrom and Chris Mercer, Eric pinpoints an inadvertent error in Mercers "Base Case" for his Quantitative Marketability Discount Model. Erics interpretation wo ...
Control interest marketability discounts
In your text, " Valuing a Business ", third edition, you state that the time horizon is a factor that contributes to a marketability discount for controlling interests. You then go ...