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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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An Analysis of the Relationship of Publicly Traded Stock Multiples to Closely Held Firm Value Multiples
The purpose of this study is to examine if there is a statistically significant difference between price to earnings (P/E) ratios and price to gross sales (P/G) ratios based on the size of companies and selected standard industrial classification (SIC) codes by the leading two digits of the Standard Industrial Classification (SIC) code. Approximately 18,000 cases of privately held business sales transactions were compared to nearly 20,000 randomly selected public stock price data to compare ...
Total Beta—Where Does It Fit in Valuation Theory
The valuation of any company by the discounted cash flow method is divided into two different tasks: forecasting cash flows and discounting these same cash flows using the appropriate discount rate. The latter requires a good understanding of the risks faced by the subject company's cash flows to be able to determine the appropriate risk premia to compensate a typical willing buyer and satisfy a typical willing seller. There is a high level of ambiguity ...
A Compensation-Based Method of Valuing Small, Closely Held Businesses
Often, individuals invest in small, closely held businesses to provide themselves with a higher-paying job than they could receive if they remained an employee. None of the currently accepted valuation methods, income, market, or asset, takes this fundamental motivation for higher compensation into consideration. The purpose of this paper is to describe those conditions in which owner compensation can create intangible value in a small, closely held business and suggest a practical valuation method when ...
Business Valuation Cases in Brief
Page 181 September 2004 Business Valuation Cases in Brief by John J. Stockdale, Jr. In Betsy T. Turner, Executrix of the Estate of Theodore Thompson v. CIR, No. 03-3173 (3rd Cir. September 1, 2004), the U.S. Court of Appeals for the Third Circuit affirmed the application of IRC sec. 2036 to recapture assets transferred to two family limited partnerships (FLPs). The Third Circuit ruled that where the partnerships do not carry on any legitimate ...
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 ...
Total Beta—A Capital Market Analysis with Empirical Evidence
Some authors have postulated that Total Beta (“Tβ”) is an appropriate measure of risk for undiversified investors to use in developing the cost of equity capital for valuing a privately held company. This paper offers a mathematical analysis of Total Beta based upon the Capital Market Theory in the Expected Return-standard deviation framework, reviews the arguments offered by supporters of Total Beta, and challenges their assumptions and logic. The author offers the first direct evidence ...
Protégé Rest. Partners LLC v. Sentinel Ins. Co.
In this business interruption case resulting from mandatory shutdowns to control COVID-19, the court says the plaintiff, a California restaurant, failed to state plausible claims to relief but gives plaintiff an opportunity to amend its complaint, even if “it does not seem likely” the plaintiff will be able to overcome the complaint’s deficiencies.
Is Your Subject Business Still Feeling the Effects of COVID-19?
The pandemic is over, but the symptoms may linger for a long time. For valuation analysts, the concern is whether the businesses they are appraising will be impacted over the long term—an impact that could be positive or negative. An example is the limited-service restaurant business, such as fast-food, pizza, coffee shops, and the like.
Issues of Cohabitation, Goodwill, and Investment Assets Considered in the Valuation of a Restaurant
In Guido Panara v. Gabriella Di Ascenzo, 2005 ABCA 47 (decided February 8, 2005), the Alberta Court of Appeal considered whether a former spouse should be awarded a share of the other spouse’s business based on their pre-marital cohabitation. It also cons ...
Valuation of Perkins restaurant separate from valuation of real estate leasing company
We owe an apology to Shawn Fox, CPA/ABV, who was the business valuation expert for wife in In re the Marriage of Probasco, abstracted on page 10 of the October 2003 issue.
Case Study on a Successful Lost Profits Analysis
Last month’s BVU featured a digest of LB 4 Fish, LLC v. Developers Diversified Realty Corp., 2010 WL 2723545 (Cal.App. 2 Dist.)(July 12, 2010)(unpublished). This case illustrates how a financial expert’s comprehensive research and analysis gave credibilit ...
Industry Updates for Firms Most Impacted by the Labor Shortage
The accommodation and food service sectors are especially feeling the pain of the current labor shortage, which can cause ripple effects on a valuation. Here are some recent updates for various firms in these sectors courtesy of the Vertical IQ industry research platform.
Five Action Steps to Verify the Financials of a Cash Business
When performing a business valuation, there are areas that are always ripe for manipulation—especially if you’re dealing with a cash business. In some cases, the manipulation is to avoid paying taxes, while others are more deliberate and intended to hurt ...
Valuing a Franchise? Consider These Seven Specific Characteristics
A recent court case involving the valuation of a chain of Planet Fitness operations underscores the challenge of valuing a franchise. True, many of the factors you consider will not be very different than those for any other type of company. But there ar ...
Using Rule of Thumb Data to Uncover Cooked Books
In addition to using rule of thumb data to corroborate a value conclusion reached using other methods, the data are also helpful for validating historical financials—particularly for cash-intensive businesses. An example and some metrics for cash businesses are presented.
BVU News and Trends July 2019
A monthly roundup of key developments of interest to business valuation experts.
BV News and Trends February 2023
A monthly roundup of key developments of interest to business valuation experts.
Letter to the Editor: Comments on an Article on the Use of Statistics in the Transaction Method
A renowned valuation expert weighs in on dueling experts’ opinions on how many transactions should be used in the application of the transaction method of appraisal.
COVID-19 Cloud Has Silver Lining in the Cannabis Sector
A good example of the varying effects of COVID-19 on different industries can be found in the cannabis sector. Of course, the pandemic has had devasting effects overall, but something interesting happened in this sector that allowed it to weather the storm fairly well, according to valuation experts close to the industry.
Inclusion of Betas in CCPro Platform Puts the Spotlight on the IRP
Two sources of industry betas are now included in BVR’s Cost of Capital Professional (CCPro) to help in estimating the industry risk premium (IRP) component of the buildup method for developing the cost of capital for a private company. For appraisers that choose to use an IRP, care must be taken and there are some important factors to consider.
BVU News and Trends September 2018
A monthly roundup of key developments of interest to business valuation experts.
Choice of Data Is Critical in Valuing Franchises
Valuing a franchised business is more an exercise in critical thinking than it is related to franchise-specific adjustments to valuation methodology. Integral to this critical thinking is the selection of research data ...
In Divorce, Who Owns the Goodwill? A Response
In his article “In Divorce, Who Owns the Goodwill?” Alan Zipp makes cogent arguments for the exclusion from the marital estate of personal goodwill that belongs to a person other than the spouse/owner of the business interest that is the subject of valuat ...
Top 10 Noteworthy BV Cases of 2014
The year 2014 produced a number of significant decisions from various federal and state courts that added new layers of understanding of valuation- and expert-related issues. Below is our list of “must know” cases, but subscribers will find digests and op ...
New Toolkit for Passive Appreciation Takes Shape
BVR and Dr. Ashok Abbott (West Virginia University) are developing an automated tool and supporting documentation that embodies his peer-reviewed methodology for separating active from passive appreciation of business assets in a divorce context.