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Preview of TAF guidance on the company-specific risk premium

In the last issue, we mentioned that auditors are looking for more quantification of the company-specific risk premium.

Auditors need to see more quantification of company-specific risk

One of the major audit review issues is company-specific risk (CSR), revealed a panel of Big Four leaders at the recent ASA Fair Value Conference in New York City last week.

BV News and Trends April 2024

A monthly roundup of key developments of interest to business valuation experts.

BVR Power Panel offers insights into recent issues

BVR has an ongoing webinar series of Power Panels, consisting of veteran practitioners and thought leaders covering recent trends and issues.

Update on guidance regarding the company-specific risk premium

Expect to see an exposure draft of guidance on the company-specific risk premium during the first half of 2024, reported Christopher Armstrong (KPMG), at the winter edition of the ASA’s Fair Value Conference last week.

BV 2023, Year in Review: Top 10 List

The year 2023 was full of change. How have high interest rates and market volatility impacted the cost of capital and minority discounts? What were some of the top cases impacting business valuation? What does the new lease accounting standard mean for valuations? What has changed in tax regulation? In this webinar, we highlight 10 major topics that impacted business valuation in 2023 and discuss implications to valuators in the upcoming year.

BV News and Trends October 2023

A monthly roundup of key developments of interest to business valuation experts.

What keeps a bank CEO up at night?

Cybersecurity is the No. 1 concern of financial institutions, according to the “State of the Banking Industry Report” from Wipfli.

Feedback Wanted on New Model for Small Firm Risk

A variation of the multiattribute utility model (MUM) used along with Monte Carlo simulation forms the basis of a new model for estimating a company-specific risk premium (CSRP) for small, closely held businesses. Excel templates are available from the model’s developer, David Goodman (Jesson, Oslin & Associates), and feedback is welcome.

New case involves dispute over company-specific risk

In a Minnesota shareholder buyout matter, the two opposing valuation experts disagreed over the risk associated with customer concentration.

BV News and Trends February 2023

A monthly roundup of key developments of interest to business valuation experts.

A Hybrid Approach to Determining Company-Specific Risk

This webinar will first explain the theoretical reasoning as to why a company-specific risk premium is necessary for a small business when using the buildup method to estimate the cost of capital. I will then present a hybrid approach using the multiattribute utility model to quantify the company-specific risk premium. Finally, I will show how to incorporate Monte Carlo simulation into the model to determine the range of potential company-specific risk premium. Attendees will have ...

Firm nimbleness as a measure of risk

Investors perceive firms with higher levels of inflexibility, such as not being able to scale operations or adapt to changes in profitability, as being riskier and have a higher implied cost of equity, researchers conclude in a new paper.

New Tool in the BV Toolbox—Incorporating Company Specific Risk in Option Pricing Models

The standard practice of accounting for company-specific risk is to leave expected cash flows unchanged and add a CRSP to the discount rate. A preferred methodology would be to adjust expected cash flows for the economic effect of company-specific risk and leave the discount rate unchanged. In this webinar, we will set forth the methodology for adjusting cash flows using a quant-based rather than a judgement-based methodology. We will then calculate call option value via ...

CFOs ignoring cyber risk despite huge losses

A Kroll report finds that 82% of the executives in its survey said their companies suffered a loss of 5% or more in their valuations following their largest cyber security incident in the previous 18 months.

BV News and Trends September 2022

A monthly roundup of key developments of interest to business valuation experts.

BV News and Trends August 2022

A monthly roundup of key developments of interest to business valuation experts.

Trugman’s Approach to Assessing Company-Specific Risk

This is an excerpt from the new sixth edition of Understanding Business Valuation, which has a companion website that includes a good selection of full sample valuation reports and other supporting material.

Comment on COE data sources survey

In last week’s issue, we reported on a survey of the data sources analysts use to estimate the cost of equity (COE) (click here to see the news item).

Koch v. Koch

This shareholder dispute case involved two businesses three brothers in Minnesota owned. One of the brothers, Jim Koch, had a falling out with the other two, Randy and Dave Koch. A temporary agreement was made among them in 2006, but subsequently the relationship and actions of the parties deteriorated. In particular, an IRS audit of the two businesses triggered a disagreement as to whether required payments under the agreement had to be tax deductible. Certain actions by the defendants breached the 2006 agreement as determined by a jury resulting in a damages award of $12 million. The court then held a bench trial to determine the value of the two businesses for determining the buyout amount for Jim’s interest in both businesses. Experts for each side testified as to value. The opinion provided a good analysis of the various issues in the methodologies each of the experts used.

Minority Shareholder Receives Award of $12 Million for Breach of Contract, $58 Million Buyout Award for Minority Interest

This shareholder dispute case involved two businesses three brothers in Minnesota owned. One of the brothers, Jim Koch, had a falling out with the other two, Randy and Dave Koch. A temporary agreement was made among them in 2006, but subsequently the relationship and actions of the parties deteriorated. In particular, an IRS audit of the two businesses triggered a disagreement as to whether required payments under the agreement had to be tax deductible. Certain actions by the defendants breached the 2006 agreement as determined by a jury resulting in a damages award of $12 million. The court then held a bench trial to determine the value of the two businesses for determining the buyout amount for Jim’s interest in both businesses. Experts for each side testified as to value. The opinion provided a good analysis of the various issues in the methodologies each of the experts used.

Whatever Happened to Specific Company Risk? Accounting for Management Risk in Private Partnerships

Multidisciplinary valuation projects set many traps for the unwary. Join Dennis Webb to learn about one such trap that affects virtually every asset holding company valuation because the real property appraiser and business valuer usually don’t know what the other needs. For specific company risk, such an omission can be quite a big deal.

Reminder: Feedback wanted on company-level beta module for the Navigator

Kroll (formerly Duff & Phelps) is developing a new module for its Cost of Capital Navigator that will enable users to derive company-level betas based on their own selection of comparable companies.

Feedback wanted on company-level beta module for the Navigator

Kroll (formerly Duff & Phelps) is developing a new module for its Cost of Capital Navigator that will enable users to derive company-level betas based on their own selection of comparable companies.

Divorce Disputes: When Valuation Experts Disagree

Valuations performed in the context of divorce litigation encounter scrutiny and challenge from opposing counsel and their experts. This puts experts in the unique situation of defending their analyses and opinions. Utilizing proper valuation techniques encompassed with supporting documentation, facts, and statistical market and industry analyses will enhance credibility by increasing an appraiser’s confidence level in his or her opinion. Join expert valuator Josh Shilts and Jeff Robison as they discuss areas in valuation that ...

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