Business Valuation Valuation Methodologies

Transcript:Business Valuation Valuation Methodologies:
Business Valuation Valuation Methodologies Discounts and Premiums Business Valuation: Common Uses of Business Valuation Tax Estate/Gift Buy/Sell Agreements Bankruptcy and Litigation Liquidation or Reorganization Patent Infringement Partner Disputes Economic Damages Financial Reporting Purchase Price Allocation, Impairment Testing and Stock Options and Grants, etc. Strategic Planning/Transaction Value Enhancement Business Plan/Capital Raising Strategic Direction, Spin-Offs, Carve Outs, etc. Acquisitions, Due Diligence Employee Stock Ownership Plan (ESOP) Internal Revenue Codes (IRC) 743, IRC 409A, etc. Solvency and Fairness Opinions Damage Assessment Dissenting Shareholder Actions Marital Dissolutions Business Valuation: Valuation Process 1.1 Proposal and Engagement Letter 1.3 Establish Valuation Date 1.2 Establish Standard of Value and Define Purpose Ongoing Internal Review and Discussion with Other Professionals and Client Ongoing Internal Review and Discussion with Other Professionals and Client Income, Market, Net Asset Approaches Signed Engagement Letter with Retainer 1.4 Data Gathering 2.1 Company and Industry Analysis 2.3 Adjustments and Recasts (Control) 2.2 Analyze Historical Financial Statements 2.4 Financial Statements Analysis (Ratios, etc.) 3.1 Implement Selected Valuation Methodologies 3.3 Final Internal Review and QC Process 3.2 Narrative Write-up of the Report 3.4 Finalize Business Valuation: Standard of Value Purpose Establish Purpose of the Engagement Estate/Gift, Buy/Sell Agreements, etc. Standards of Value (i.e. Fair Market Value, Fair Value, etc.) Interest Being Valued (i.e. Enterprise, Equity, Marketable, Non-Marketable, Control, Minority, etc.) Valuation Date Agree on a Appropriate Valuation Date Utilize Data Subsequent to the Valuation Date Sometimes can Consider Data After the Valuation Date if it was Foreseeable as of the Valuation Date Business Valuation: Standards of Value Common Standards of Value Fair Market Value (Tax): Fair market value applies to virtually all federal and state tax matters, including estate, gift, inheritance, income and ad valorem taxes as well as many other valuation situations. “The fair market value is the price at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or to sell and both having reasonable knowledge of relevant facts.” – IRS Revenue Ruling 59-60 Liquidation Value: Orderly; forced. Fair Value (Financial Reporting): Can vary but it is generally similar to Fair market value with some exceptions. The amount at which an asset (or liability) could be bought (or incurred) or sold (or settled) in a current transaction between willing parties, that is, other than in a forced or liquidation sale.” - FASB 157 Fair Value (Litigation): Fair value may be the applicable