Using Regression Analysis in Business Valuation
As valuation analysts, we often analyze how one or more variables explain the behavior of another variable such as revenues or trends in market multiples. We are also tasked with analyzing trends in data over time to be used as a basis for a forecast of future expected results. A tool that helps us analyze the relationships between variables is linear regression. Linear regression models can be useful tools in analyzing relationships between economic and ...
Simple Idea to Help Business Sellers Get All They Deserve
A valuation expert had a client who wanted to sell his company but had an unrealistic idea about price. The expert used DealStats to create a compelling visual that saved the deal from falling apart.
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 ...
Letter to the Editor: The Use of the Arithmetic Mean to Average Multiples
The author takes issue with an article that concludes that the harmonic mean should be used as the appropriate measure of central tendency for a sample of market multiples.
Do Not Use the Arithmetic Mean to Average Multiples
Valuation professionals should not use the arithmetic mean of multiples. It is mathematically incorrect because it gives excessive weight to high multiples. A multiple is an inverted ratio with price in the numerator. Therefore, the harmonic mean should be used as the appropriate measure of central tendency.
Valuing Micro and Small Businesses in the Shadows of COVID-19
Valuing micro and small businesses in the shadow of COVID-19 is daunting. COVID-19’s effects on the economy has magnified risk and uncertainty for small business, making the job of valuators more difficult. Join small business broker, attorney, valuation professional, and author Gregory Caruso for a deep dive into problematic areas of actual small-business valuation cases. With a review of how the theory ties into the actual application of methods using best practices and professional judgment ...
Tales From the Trenches: How to Successfully Use Statistics—Without Being a Data Guru
Mark Twain said there are “lies, damned lies and statistics.” Some valuation experts may be uncomfortable using statistics in an engagement. But you don’t have to be a statistics guru to successfully use them when the engagement calls for it. For instance, many damages litigations include the use of regression analyses and/or statistical sampling. Both are statistical methods of determining the amount of damages in a dispute.
Tales From the Trenches: How to Successfully Use Statistics—Without Being a Data Guru
Even though you may not be a statistics expert, you can effectively use statistical sampling and regression when the engagement calls for it. Here are some “in the trenches” examples that demonstrate that.
BVU News and Trends July 2018
A monthly roundup of key developments of interest to business valuation experts.
Sample size debate spills over onto LinkedIn
What’s the minimum number of transactions that should be used from a database such as BIZCOMPS or Pratt’s Stats?
Debate continues on use of statistics
“I can no longer stay a silent observer,” says Gary Trugman (Trugman Valuation) about the back-and-forth over how many transactions should be used in the application of the transaction method of appraisal.
BV experts cross swords over statistics
What’s the minimum number of transactions that should be used from a database such as BIZCOMPS or Pratt’s Stats?
Tax Court's Koons decision withstands appeal: DLOM ruling anchors valuation
The 11th Circuit recently affirmed a four-year-old Tax Court valuation of a revocable trust’s interest in a limited partnership. The linchpin in the valuation was the marketability discount.
Estate of Koons v. Commissioner (Koons II)
Affirming FMV conclusion, appeals court says Tax Court did not err in focusing less on details of methodology parties’ appraisers used than on larger issue of whether hypothetical seller would be able to force distribution of majority of LLC’s assets.
Winn-Dixie Stores, Inc. v. Dolgencorp, LLC
Appeals court affirms Daubert exclusion of plaintiff's damages expert because she analyzed the wrong problem and her conclusion did not assist the trier of fact; also, her economic model and regression analysis failed to measure “effect of the violation.”
Estate of Koons v. Commissioner
In determining the fair market value of a revocable trust’s interest in an LLC, the Tax Court adopts the IRS expert’s marketability discount and valuation; he rightly assumed it was reasonably foreseeable at the time of the decedent’s death that the trust ...
The Citrilite Co. v. Cott Beverages, Inc.
Court upholds regression analysis of cumulative data sets under Daubert but strikes portions of expert’s damages calculations that project lost profits beyond stated contract term.
Accounting Expert’s Lost Profits Analysis Accepted Over Economist’s Estimate
The Delaware Court of Chancery calculated lost profits arising from the breach of a contract.
Honeywell International Inc., et al. v. Air Products & Chemicals, Inc.
The Delaware Court of Chancery calculated lost profits arising from the breach of a contract.
From experts in valuation in each of nine industry groups to a takeoff on Survivor, AICPA BV Conference offers variety
The 2001 AICPA Business Valuation Conference held at the Venetian in Las Vegas December 2-4 was attended by 840 people (by the way, the Venetian served the best conference food that I've ever experienced).
New book analyzes small business transaction data
Transaction Patterns is a very interesting and useful book for both the business appraiser and the business broker. The data is compiled from the BIZCOMPS database, but similar analysis could be done on The IBA Market Database and Pratt's Stats, and I believe that results would be similar.
Demystifying the user of beta in the determination of the cost of capital and an illustration of its use in Lazard's valuation of Conrail
The Journal of Corporation Law , Winter 2000, Vol. 25 This article discusses deriving the figure for beta (a measure of a security's sensitivity to market movements) in valuing capital budgeting ...
IRS releases recommendations on valuation policies
It has long been known that there are serious deficiencies in the Internal Revenue Service's valuation policies. There is a lack of cohesiveness in valuation reporting requirements and an absence of u ...
Spillert v. Spillert
At issue is the valuation of husband's medical practice.