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Stay appraised of all the latest business considerations in the jewelry industry! The report explains how jewelry stores operate, the nature of their revenue streams, value drivers, the industry environment, the risks involved, and other key factors.
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Valuing Customer Relationships: The Do's and Don'ts of the Distributor Method
While the relief from royalty method and multiperiod excess earnings method are effective tools for valuing intangible assets such as customer relationships, they rely on market data that can be both highly subjective and of poor comparable value to the subject company. As an alternative, the distributor method provides appraisers with a market-based proxy for use in valuing customer relationships. Join experts Edward Hamilton and Sean Woodward to explore the strengths and weaknesses of customer ...
Valuation and the IRS: Update for 2019
What are the implications of the government shut down on the IRS’s ability to audit business valuation returns in 2019? What steps should you take if your appraisal is audited by the IRS? In this must-attend webinar, expert Michael Gregory will answer these questions and cover key areas such as the top three business valuation appraisal audit areas by the IRS. Attendees will come away with recommendations on how to work with the IRS given ...
Valuing Real Estate Holding Companies: A Deeper Look at the Underlying Data with Case Study
Real estate holding companies often have vastly different characteristics than your average manufacturer or retailer. As such, everything from the underlying data, applicability of the valuation approach, and risk-adjusted discount rate should be examined. Russell Glazer of Gettry Marcus CPA, PC will guide you through the distinctive aspects of valuing real estate holding companies with a special focus on understanding the underlying empirical market data such as REITS, closed-end funds, and real estate limited partnerships.
Valuations for Complex FLPs
Once an appraiser adopts a more analytical method for valuing FLPs by using the income and market approaches, certain types of partnerships may be considered complicated. This webinar will focus on valuing complex FLPs including multiple-asset FLPs, oil and gas FLPs, and non-income-producing FLPs using case studies. In addition, the speaker will share his opinion on issues such as how to handle the FLPs that own privately held stock, other partnership interests, venture capital funds ...
Projection Issues Raised in ESOP Litigation
Revenue growth rate, profit margins, and long-term growth rate can all meaningfully impact projections. Add in inconsistency with historical results, industry/economy impacts, and lack of adjustment for critical things such as compensation or capital expenditures, and it is easy to see how litigation can arise. Chip Brown, Chelsea Mikula, and Kyle Wishing help identify common issues raised in ESOP litigation cases (either by the Department of Labor or private plaintiffs) with respect to financial projections ...
Evaluating and Applying Control Premiums
In recent years, a greater amount of scrutiny has been placed on valuation analysts’ selection and use of control premiums. As a result, there has been a renewed interest in distinguishing acquisition premiums from control premiums and equity premiums from invested capital premiums. Join Timothy Meinhart for a comprehensive discussion of the proper quantification and application of acquisition premiums and control premiums and also learn about the benefits of using market-based invested capital premiums rather ...
Using the Industry Cost of Capital Handbook to Provide Better, Defensible Cost of Capital Estimates
Join Jim Harrington of Duff & Phelps for this highly anticipated free webinar. Learn what's new and how to use the 2015 Valuation Handbook - Industry Cost of Capital. Get practical guidance with a case study and discussion of how to incorporate industry analysis into your valuation reports. The 2015 edition includes cost of capital estimates (equity capital, debt capital, and WACC) for over 200 U.S. industries, plus a host of detailed statistics that can be ...
Editor's Column
In this issue, you will find Professor John Paglia’s “Appraiser versus Real World Debates,” where he presents updated information for the cost of capital analyses for private companies. Also related to the cost of capital are two more articles. One is Jaime Dalmeida’s article “Why Salvador Dali Would Not Have Made a Good Appraiser: BV and Real Estate Discount Rates.” This article on real estate discount rates and rates of return in business valuation is an ...
From the Chair of the Business Valuation Committee
From the Chair of the Business Valuation Committee William A. Johnston, ASA I hope everyone had a great time at the Advanced Business Valuation Conference in Las Vegas. It was great to see everyone there. We had one of our best-attended conferences ever. Special thanks to Dan McConaughy, the chair of the conference, and Lisa Perry, the conference coordinator, for all of their efforts. Public Company Valuation Credential On October 5, 2015, the Appraisal ...
An “Enhanced Multiple” Corporate Valuation Model: Theory and Empirical Tests
In this article, we develop an enhanced corporate valuation model based on the implied cost of equity capital (ICC). We argue that the enhanced method extends the standard market multiples and discounted cash flow (DCF) methods to corporate valuation. Specifically, it incorporates positive aspects of the market comparables and DCF methods while mitigating the shortcomings of both. Unlike the traditional market comparables method, the enhanced method takes account of the full-term structure of earnings forecasts.
Terminal Value, Growth, and Inflation: Some Practical Solutions
Terminal or continuing value (CV) is a key element in calculating the value of firm capital in any income-based valuation model. This paper focuses on calculating CV in the context of a firm operating as a going concern, highlighting some of the problems associated with the treatment of growth and inflation, which, although investigated in the literature, are not generally dealt with using sufficiently in-depth analysis. The effect of inflation on forecasted income and cash ...
The Size Effect—It Is Still Relevant
Practitioners commonly incorporate a size premium when developing their cost of capital estimates using the modified capital asset pricing model (MCAPM). This article is intended to correct common misconceptions about the size premium and demonstrate that data from recent periods support the continued use of a size premium.
Valuation Using Industry Multiples: How to Choose the Most Relevant Multiples
Our research focuses specifically on the methodology to be applied to improve the relevance of the multiples-based valuation method regarding the identification of the most relevant multiples (i.e., that reduce the relative absolute valuation error within any industry-based peer group). In line with prior empirical studies, our results confirm that Enterprise Value multiples based on EBIT and EBITDA perform better, compared to Sales and Capital Employed, and that multiples based on forward-looking EBIT and EBITDA ...
When Averaging Multiples, the Arithmetic Mean Is Inferior to the Harmonic Mean
This article posits that using the arithmetic mean to average multiples is mathematically inferior. A multiple is an inverted ratio with price in the numerator. The harmonic mean is a statistically sound method for averaging inverted ratios. It should be used as a measure of central tendency for multiples, along with the median. Empirically, the harmonic mean and the median of a set of multiples are usually similar. Because the harmonic mean can be overly ...
Multiples Used to Estimate Automotive Dealerships Market Value
Practitioners use goodwill multiples for valuing automobile dealerships. In this paper, the valuation accuracy of five goodwill multiples and seven more traditional multiples that can be used for estimating the market value of the equity of car dealerships is assessed during the 2010–2016 period. Our results support that the goodwill multiples provide the smallest estimation errors in valuing the market value of automobile dealerships.
AMERICAN SOCIETY OF APPRAISERS: Business Valuation Committee Special Topics Paper #3: The Use of Management's Prospective Financial Information by a Valuation Analyst
According to AICPA Professional Standards: AT Section 301 Financial Forecasts and Projections, “financial forecast is the prospective financial statements that present, to the best of the responsible party's knowledge and belief, an entity's expected financial position, results of operations, and cash flows. A financial forecast is based on the responsible party's assumptions reflecting the conditions it expects to exist and the course of action it expects to take.” In order for a valuation analyst to ...
The Small Cap Premium: Where Is the Beef?
Academics and practitioners in finance have long accepted the notion that small market capitalization stocks earn higher returns, after adjusting for risk, than large market capitalization stocks. They have often followed through by either investing in small cap stocks, hoping to earn these higher returns, or by augmenting the required returns (discount rates) for smaller companies with a “small cap premium” when valuing these companies. In this article I argue that these practices are misguided ...
Pass-through Entities: A Tax Equivalent Method to Adjust the Cost of Equity
A contentious debate continues between the IRS, tax courts, and valuation professionals regarding the valuation of pass-through entities. Considerable diversity of practice has risen around the taxation treatment and benefit determination of pass-through entities when using cost-of-capital estimates derived from public equity markets. Lacking direct evidence of the cost-of-equity capital in a privately held entity, valuation practitioners often turn to the public equity markets for a cost-of-equity measure to use when applying income-based valuation methods.
CAPM: An Absurd Model
CAPM: An Absurd Model Pablo Fernandez, PhD, MBA The Capital Asset Pricing Model (CAPM) is about expected return. If you find a formula for expected returns that works well in the real markets, would you publish it? Before or after becoming a billionaire? The CAPM is an absurd 2 model because its assump- tions and its predictions/conclusions have no basis in the real world. According to the dictionary, a theory is an idea or ...
Part II: Appraiser vs. Real-World Debates: The Case for Using Private Capital Markets Data
In the 1st part of this series we focused on how appraisers and the real world have such differing views on ‘costs of capital,’ ‘capital access,’ and, thus, valuation. In Part I, entitled “Appraisers vs. Real World Debates: How many appraisers can dance on the head of the private capital market?,” I referenced that there is a considerable gap between reality and the hypothetical, which further limits the strategic value of business appraisals. In this ...
Unlocking the Value of ESG: Report from the International Valuation Standard Council
This report provides an overview of the work carried out by the International Valuation Standard Council (IVSC) over the past two years in relation to unlocking the value of environmental, social, and governance (ESG) criteria within the valuation process, including a summary of the recently published IVSC ESG perspectives papers and internally generated intangibles. The report also illustrates some key findings from the IVSC ESG survey for firms, investors, and valuation providers and advises when ...
The Size Effect Continues To Be Relevant When Estimating the Cost of Capital
In this paper, I will review the size effect, potential reasons why one observes the size effect, and correct common misconceptions and address criticisms of the Size Premia (SP). Specifically, we demonstrate that the size premium critique by Cliff Ang is not warranted and that the alternative methodology proposed by that author is misleading and cannot be considered as an alternative to the Duff & Phelps’ SP. Subsequently, we will highlight some methodological issues with ...
The Cost Approach May Be the Best for Construction Firms—Here’s Why
The nature of construction firms is such that the use of some valuation approaches may pose problems. Although the valuation of construction firms may be speculative, in many cases, the U.S. Tax Code and the Financial Accounting Standards Board’s Accounti ...
Probing the Values of Professional Service Firm Brands
Although marketing has become more important for accounting and advisory firms, branding is usually not a big issue. The corporate brand typically carries the name of the founders, a combination of the former names of now merged entities, or an abbreviati ...
How Do Your Firm’s Benefits Stack Up?
“Flexibility” is the most important aspect of a benefits plan BV firms should be offering to employees, reveals a BVR survey. Also, a look at the levels of signing bonuses BV firms are doling out is presented.