I am valuing a construction contractor located here in Northeastern Ohio, where construction activity is way down and will remain that way for many years, barring a miracle. Most authorities expect it to grow perhaps 1% annually on trend, with huge cyclical swings. My client’s revenues ranged from $1.8 to $3.0 million during [...]
I found a small logical inconsistency in my general-purpose valuation report template (that lays out all three approaches to value).
Until now, when I calculated the liquidated value of a business, I often made a small (5% of liquidated value) deduction for expenses (such as sales commissions). Upon reflection, I think that was [...]
I have written about this before, but it is so important that it is worth repeating: the cost of capital is forward-looking.
The cost of capital – be it weighted average, debt, preferred stock, or common stock – is the rate of return that investors require to compensate them adequately for the risk of providing that [...]
A colleague called for help valuing what she called a “buy-a-job” business. The literature uses the term, and I have heard it many times, but I asked her anyhow, “How do you know it is a buy-a-job business?” I am glad I did, because her response was terrific:
“You cannot expect a buy-a-job business [...]
I have taught undergraduate macroeconomics at a local university for the last three semesters. It has been a wonderful experience – and a quite fortuitous time to be studying and teaching the subject, which leads the news almost every day. It has also given me a chance to catch up on developments in [...]
As time goes by and I put more IRS audits under my belt, I am modifying my approach to dealing with them. Three facts are driving this:
1. Our professional standards require that we remain independent and objective. We can advocate for our opinion, but not for the cause of our client. Regardless of [...]
Building on the “How Do You Value a Business” post, a common misperception is that value reflects historical and current rather than expected financial results. We know that valuation is forward looking, but the facts are that:
1. Public stock price multiples are usually calculated on trailing twelve-month (TTM) bases.
2. Many acquirers – even sophisticated ones like [...]
All of us have been pressured to opine values that are more favorable for clients. This might involve higher sales prices, lower taxable values, and so forth. If case facts and circumstances allow it, we may be able to accommodate them by changing our assumptions, as long as our opinions are independent, objective, [...]
Here is another in my “How do you explain it?” series. Today’s question is “How do you value a business?” Almost every prospective client or advisor asks this, so we need an answer that educates and demonstrates our communication skill. Since their time and attention span are limited, we must respond briefly [...]
As email use gained popularity, people started asking me to send draft reports that way rather than meeting with them to present preliminary results. This was fine by me, as it saved time, but it also created communication problems:
1. Clients are not familiar with how appraisal reports are organized, and may not completely read them. [...]
