Understanding Business Valuation - 6th Edition
February 2022 Hardcover, PDF
Gary Trugman
Business Valuation Resources, LLC
In this exciting new edition of Understanding Business Valuation, Gary Trugman takes his characteristic talent for simplifying the technical and complex to even greater heights. In his easy-to-read and understand style he covers all the bases with valuation approaches, methods, and techniques. Trugman identifies critical points in his callout notes throughout the publication.
This book is ideal for practitioners of any experience level as well as for onboarding and training new or junior level analysts. It features a companion website and corresponding training programs.
6th edition updates include:
- An expanded section on personal goodwill
- An expanded report-writing section that also trains on creating a solid rebuttal report
- A companion website for access to case studies, data samples, case law, and more
- An extensive bibliography
- Updated real-world examples and exhibits
Preface
Acknowledgments
Introduction
Chapter 1. Overview of Business Valuation
LEARNING OBJECTIVES
INTRODUCTION
A BRIEF WALK DOWN MEMORY LANE
WHY ARE BUSINESSES VALUED?
WHO VALUES BUSINESSES?
PROFESSIONAL VALUATION ORGANIZATIONS
CONCLUSION
Chapter 2. Business Valuation Standards
LEARNING OBJECTIVES
INTRODUCTION
AICPA STATEMENT ON STANDARDS FOR VALUATION SERVICES NO. 1
VS SECTION 9100
AICPA STATEMENT ON STANDARDS FOR CONSULTING SERVICES
ASA STANDARDS
UNIFORM STANDARDS OF PROFESSIONAL APPRAISAL PRACTICE
NACVA
GLOSSARY OF BUSINESS VALUATION TERMS
CONCLUSION
Chapter 3. Getting Started LEARNING OBJECTIVES
INTRODUCTION
LEARNING ABOUT THE ENGAGEMENT
DECIDING WHETHER TO ACCEPT THE ENGAGEMENT
ENGAGEMENT LETTERS
THE FIVE STEPS OF A VALUATION ASSIGNMENT
ENGAGEMENT LETTER CONSIDERATIONS FOR LITIGATION REPORTS
THE INITIAL DOCUMENT REQUEST
USING A STANDARD CHECKLIST
SETTING UP MULTIPLE CHECKLISTS
CONCLUSION
Chapter 4. Valuation Principles and Theory
LEARNING OBJECTIVES
INTRODUCTION
PRINCIPLES OF VALUATION
STANDARDS OF VALUE
HOW THE PURPOSE OF THE VALUATION INFLUENCES THE STANDARD OF
VALUE
SUBSEQUENT EVENTS (KNOWN OR KNOWABLE)
IRS INFLUENCE ON BUSINESS VALUATIONS
CONCLUSION
Chapter 5. Data Gathering
LEARNING OBJECTIVES
INTRODUCTION
WHAT ITEMS AFFECT VALUE?
INTERNAL INFORMATION
EXTERNAL INFORMATION
THE ON-SITE INTERVIEW
CONCLUSION
Chapter 6. Data Analysis
LEARNING OBJECTIVES
INTRODUCTION
ECONOMIC ANALYSIS
INDUSTRY ANALYSIS
SUBJECT COMPANY ANALYSIS
SWOT ANALYSIS
FINANCIAL ANALYSIS
FINANCIAL STATEMENT ADJUSTMENTS
NONCONTROLLING INTEREST VALUATIONS
CONCLUSION
Chapter 7. Statistics for Valuation and Economic Damages
LEARNING OBJECTIVES
INTRODUCTION
POPULATION AND SAMPLE: DESCRIPTIVE AND INFERENTIAL STATISTICS
DISCRETE AND CONTINUOUS VARIABLES
FREQUENCY DISTRIBUTIONS AND MEASURES OF VARIATION
CENTRAL TENDENCY (MEAN, MEDIAN, MODE, AND SO FORTH)
VARIATION
PROBABILITY
CORRELATION
LET’S DO SOME NUMBER CRUNCHING
BE CAREFUL NOT TO DRINK THE STATISTICS KOOL-AID: THIS STUFF CAN BE
MISLEADING
CONCLUSION
Chapter 8. Developing Forecasts for Business Valuations and Economic Damages
LEARNING OBJECTIVES
INTRODUCTION
FORECAST VERSUS PROJECTION
MANAGEMENT’S FORECAST
FACTORS TO CONSIDER WHEN EVALUATING MANAGEMENT’S FORECAST
PREPARING THE FORECAST
THE SALES FORECAST
PROJECTING SALES FOR A NEW BUSINESS
COST OF GOODS SOLD
OPERATING EXPENSES
DEPRECIATION AND CAPITAL EXPENDITURES
INTEREST EXPENSE AND BORROWING NEEDS
BALANCE SHEET FORECAST
APPLICABLE STANDARDS FOR FORECASTS IN BUSINESS VALUATION AND
ECONOMIC DAMAGE ASSIGNMENTS
COURT ACCEPTANCE
CONCLUSION
Chapter 9.The Market Approach—Part I
LEARNING OBJECTIVES
INTRODUCTION
GUIDELINE PUBLIC COMPANY METHOD
USING VALUATION MULTIPLES
VALUING INVESTED CAPITAL INSTEAD OF EQUITY
ADVANTAGES OF USING THE GUIDELINE PUBLIC COMPANY METHOD
DISADVANTAGES OF USING THE GUIDELINE PUBLIC COMPANY METHOD
CONCLUSION
Chapter 10. The Market Approach—Part II
LEARNING OBJECTIVES
INTRODUCTION
MERGER AND ACQUISITION (TRANSACTION) METHOD
TRANSACTION ANALYSIS
LET’S GET BACK TO VALUATION THEORY
INTERNAL TRANSACTIONS
INDUSTRY METHOD
CONCLUSION
Chapter 11. The Asset-Based Approach
LEARNING OBJECTIVES
INTRODUCTION
COMMON APPLICATIONS OF THE ASSET-BASED APPROACH
ADVANTAGES AND DISADVANTAGES OF THE ASSET-BASED APPROACH
VALUATION METHODS
WORKING WITH OTHER APPRAISERS
HOW TO LOCATE AND RECOGNIZE SPECIALISTS
CONCLUSION
Chapter 12. The Income Approach
LEARNING OBJECTIVES
INTRODUCTION
VALUE IS FROM AN INVESTOR’S VIEWPOINT
ADVANTAGES AND DISADVANTAGES OF THE INCOME APPROACH
SELECTING BENEFIT STREAMS
USING PRETAX OR AFTER-TAX INFORMATION
VALUING INVESTED CAPITAL INSTEAD OF EQUITY
USING CASH FLOW INSTEAD OF EARNINGS
DEFINING CASH FLOW
FORECASTING FUTURE BENEFIT STREAMS
INCOME APPROACH METHODS
CONCLUSION
Chapter 13. Discount and Capitalization Rates
LEARNING OBJECTIVES
INTRODUCTION
DISCOUNT RATES
CAPITALIZATION RATES
DERIVING DISCOUNT AND CAPITALIZATION RATES APPLICABLE TO NET
INCOME DIRECTLY FROM THE MARKET
BACK TO THE REAL WORLD
CONCLUSION
Chapter 14. Premiums and Discounts (Valuation Adjustments)—Part I
LEARNING OBJECTIVES
INTRODUCTION
TYPES OF DISCOUNTS
LEVELS OF VALUE
VALUATION ADJUSTMENT—CONTROL PREMIUM
LACK OF CONTROL (NONCONTROLLING) DISCOUNTS
DISCOUNT FROM NET ASSET VALUE
DISCOUNT FOR EMBEDDED CAPITAL GAINS
CONCLUSION
Chapter 15. Premiums and Discounts (Valuation Adjustments)—Part II
LEARNING OBJECTIVES
INTRODUCTION
DISCOUNT FOR LACK OF MARKETABILITY (ILLIQUIDITY)
PRIVATE-COMPANY DISCOUNT
KEY-PERSON DISCOUNT
BLOCKAGE DISCOUNT
OTHER PREMIUMS AND DISCOUNTS
APPLICATION OF VALUATION ADJUSTMENTS
CONCLUSION
Chapter 16. Revenue Ruling 59-60
LEARNING OBJECTIVES
INTRODUCTION
REVENUE RULING 59-60
CONCLUSION
Chapter 17. The Valuation Report
LEARNING OBJECTIVES
INTRODUCTION
COMPONENTS OF A VALUATION REPORT
TYPES OF VALUATION REPORTS
PREPARING THE BUSINESS VALUATION REPORT
DEFENDING THE BUSINESS VALUATION REPORT
THE REBUTTAL REPORT
Chapter 18. Valuation of Pass-Through Entities
LEARNING OBJECTIVES
INTRODUCTION
WHAT IS AN S CORPORATION?
KEY COURT CASES
SO, WHERE DO WE GO FROM HERE?
VALUATION ISSUES
SOME NEWER THOUGHTS ON THE ISSUE
OTHER PASS-THROUGH ENTITIES
CONCLUSION
Chapter 19. Valuation in Financial Reporting
LEARNING OBJECTIVES
INTRODUCTION
BACKGROUND OF VALUATION IN FINANCIAL REPORTING
FASB ASC 820, FAIR VALUE MEASUREMENT
FASB ASC 805, BUSINESS COMBINATIONS
FAIR VALUE MEASUREMENTS IN IMPAIRMENT TESTING
WHEN TO TEST FOR ONGOING IMPAIRMENT
DEVELOPING BEST PRACTICES IN VALUATION FOR FINANCIAL REPORTING
THE APPRAISAL FOUNDATION
AICPA
WORKING WITH THE CLIENT’S OUTSIDE AUDITING FIRM
THE MANDATORY PERFORMANCE FRAMEWORK
IDENTIFICATION OF INTANGIBLE ASSETS FOR FINANCIAL REPORTING
CONCLUSION
Chapter 20. Valuing Intangible Assets: An Overview
LEARNING OBJECTIVES
INTRODUCTION
WHAT IS INTELLECTUAL PROPERTY?
CONDUCTING A VALUATION OF INTANGIBLE ASSETS
WHAT IS A RUL ANALYSIS?
WHAT IS A REASONABLE ROYALTY RATE AND WHERE DO I GET THIS STUFF?
WHAT IS AN AMORTIZATION BENEFIT?
HOW ABOUT SOME MORE EXAMPLES
CONCLUSION
Chapter 21. Estate and Gift Valuations
LEARNING OBJECTIVES
INTRODUCTION
PENALTIES FOR UNDERVALUATION ON ESTATE AND GIFT TAX RETURNS
2006 PENSION PROTECTION ACT
REVENUE RULING 59-60
CHAPTER 14 GUIDELINES
CASE LAW
THE VALUATION REPORT
THE FLP VALUATION
AS VALUATION ANALYSTS, DO WE GO FOR THE BIG DISCOUNTS?
CONCLUSION
Chapter 22. Divorce Valuations
LEARNING OBJECTIVES
INTRODUCTION
THE ROLE OF THE VALUATION ANALYST
DEFINITION OF VALUE
VALUATION DATES
VALUATION METHODS
VALUATION AS OF A SPECIFIC DATE
DATA GATHERING AND ANALYSIS
THE VALUATION PROCESS
NORMALIZING THE FINANCIAL STATEMENTS
EXPLAINING THE VALUATION
REACHING A CONCLUSION OF VALUE
DIVORCE VALUATIONS OF PROFESSIONAL PRACTICES
PERSONAL GOODWILL IN GENERAL
NONCOMPETE AGREEMENTS
VALUATION OF OTHER MARITAL ASSETS
PASSIVE VERSUS ACTIVE MARITAL ASSETS
CONCLUSION
Chapter 23. Professional Practice Valuations
LEARNING OBJECTIVES
INTRODUCTION
WHY ARE PROFESSIONAL PRACTICES VALUED?
CHARACTERISTICS OF THE PROFESSIONAL PRACTICE
PROFESSIONAL PRACTICE VERSUS OTHER BUSINESS VALUATIONS
THE VALUATION PROCESS
VALUATION CALCULATIONS—UNIQUE ASPECTS OF THE CALCULATIONS
RULES OF THUMB
CONCLUSION
Chapter 24. Ownership Disputes
LEARNING OBJECTIVES
INTRODUCTION
DISSENTING SHAREHOLDER MATTERS
OPPRESSED SHAREHOLDER MATTERS
FAIR VALUE
THE VALUATION DATE
FAIR VALUE METHODOLOGY
CONCLUSION
Chapter 25. Other Valuation Assignments
LEARNING OBJECTIVES
INTRODUCTION
STOCK OPTIONS
VALUATION OF OPTIONS
BLACK-SCHOLES-MERTON OPTION PRICING MODEL
THE BINOMIAL OPTION PRICING MODEL
WARRANTS
PREFERRED STOCK
DEBT SECURITIES
EARLY-STAGE COMPANIES
CONCLUSION
Chapter 26. Economic Damages
LEARNING OBJECTIVES
INTRODUCTION
LOST PROFITS
THE LOST PROFITS ANALYSIS
CONCLUSION
Chapter 27. My Favorite Court Cases
LEARNING OBJECTIVES
INTRODUCTION
ESTATE OF JOYCE C. HALL V. COMMISSIONER
ESTATE OF SAMUEL I. NEWHOUSE V. COMMISSIONER
CHARLES S. FOLTZ V. U.S. NEWS & WORLD REPORT, INC.
BERNARD MANDELBAUM, ET AL. V. IRS COMMISSIONER
MAD AUTO WRECKING INC. V. COMMISSIONER
DELAWARE OPEN MRI RADIOLOGY ASSOCIATES P.A. v. HOWARD B. KESSLER, ET
AL.
CONCLUSION