Some small thoughts:
1. I just finished a 409A valuation that had a new (for me) complication: there were minority interests (the subject company had 80% interests in three subsidiaries). This required that I value each of the subsidiaries and deduct 20% of their values from the equity of the subject company.
2. In the obsessive-compulsive department, after [...]
Just to review, the Justification of Purchase Test (JOPT) has three criteria that have to be satisfied to verify a concluded value:
1. The acquiring owner-manager earns reasonable (fair market or more) compensation.
2. Adequate service of assumed and acquisition-related debt.
3. Adequate return on equity investment (if the business is not just a “buy-a-job” proposition).
A colleague asked a great question: [...]
I like to challenge myself by taking on business valuation jobs outside of my bread and butter tax, transactional, and financial accounting work. I recently finished one for Ohio Medicaid compliance.
To qualify for Medicaid assistance, an individual’s income and “countable assets” (a modified form of their personal net worth) must fall below certain limits. [...]
For the last two years, I have enjoyed a part-time assignment as an undergraduate macroeconomics professor at a local university. I recently attended a faculty mixer that was set up like a speed-dating session. Everyone paired off with each other for five minutes. We were asked to explain the focus of our field [...]
Long-time reader Rod Burkert posted such a great comment regarding my last post that I thought it important enough to emphasize here. Thank you, Rod!
Rod’s view is that value is based on expected returns and risks at a point in time (the valuation date). Given what is known or reasonably knowable as of [...]
The value of a business interest reflects expectations about ownership benefits and their risks. This is the basis of the Income Approach. Forecast cash flow (to equity) measures expected (equity) ownership benefits. The cash flow discount rate measures risks. We all know how to project cash flows using a financial [...]
I have posted, ad infinitum, as to why cash flow to equity is the preferred metric for stock valuations, and I will not repeat my reasoning here. Having said that, however, I find it very interesting that I, along with just about everyone else I have ever worked with, develop cash flow to equity [...]
I just LOVE the Multi-Period Discounting Model because it is so explicit!
1. When I lay out its assumptions, it allows me to support them by bringing together my preceding economic, industry, and company analyses to provide a strong basis for each one.
2. When I lay out the five-year financial forecast with income statements, balance sheets, and cash [...]
A friend was teasing me about business valuation, claiming that we appraisers “adjust the numbers [meaning historical financial statements] so much that the [performance of the] business is unrecognizable.”
For once in my life, I came back fast with the right response: “You have it precisely backwards! Historical financial statements may already have so many [...]
A business appraisal is a systematic determination of the value of a business interest. The word “systematic” conjures a very helpful (at least to me) analogy. A system consists of inputs, throughputs, and outputs. Inputs are what go in, throughputs are intermediate results, and outputs are concluded results. Appraisal inputs are [...]
