Businesses may have a wide range of intangible assets at their disposal. One important type of such assets that tend to increase in value over time is databases and subscription lists. This is especially so if the lists are assembled one item at a time. Consider a customer database that grows as the business adds… Continue Reading
Under the accounting standards published by the Financial Accounting Standards Board (FASB) two deal with the way business goodwill is handled: SFAS 141 and SFAS 142. Business goodwill is put on the company’s books if management acquires another firm. Under the SFAS 141 and 142 goodwill is tested each year for impairment. This impairment occurs… Continue Reading
Accurate inventory valuation should be high on your list of priorities. Some reasons why: One of the key business tangible assets, inventory is well understood by both business people and appraisers. Businesses determine the value of inventory to close the books on a regular basis. Inventory is a unique type of asset in that it… Continue Reading
To answer this question requires a judgment call. Each company needs to make a decision whether to disclose the values of its intangibles depending on its set of circumstances. Under the Generally Accepted Accounting Principles (GAAP) the firms should make available all information that helps investors and creditors understand and forecast future cash flows –… Continue Reading
In the US the Internal Revenue Service has laid out the expectations for what the tax authorities look for in business valuations. Here is the list: The nature of the business and its history The book value of the company stock and its financial condition The dividend paying ability of the firm The presence of… Continue Reading
Every business valuation relies upon a set of assumptions about how the economic environment will look some time in the future. Once the assumptions are made, the business appraiser can make forecasts for the business being valued. If you take a look at a typical business valuation report, there is usually a section outlining the… Continue Reading
You may have heard this: business value fluctuates as time goes on. Fair enough, but the question you may ask is what factors best capture this change? Here is our short list: Discount rate Capitalation rate Valuation multiples The reason these numbers are in a constant state of flux is that the marketplace conditions vary… Continue Reading
So why do you run across business appraisal result differences? You might think: if all business appraisers follow the standards such as USPAP and AICPA SSVS how come the results differ? The main reason is that clients influence the outcome of professional business valuations. Business people have a reason for business appraisals and an idea… Continue Reading
The discounted cash flow or DCF valuation method is perhaps the most widely used technique in income based business appraisals. If you take a look at the calculation, you will notice that it consists of two parts: A discounted forecast of future earnings over a finite time period A so-called terminal value calculation The idea… Continue Reading
You can see from our discussion of business valuation that there are a number of ways to determine what a company is worth. In theory the results you get by using the different methods should give you very similar answers. That often is indeed the case, yet the actual business values calculated with various methods… Continue Reading
When you value a business the result is valid for the present time. As business conditions changes so does the value of a company. One way to use this idea is to track how business value changes over time. If you run a number of business valuations over a number of years, you can see… Continue Reading
It is well known that all business valuations are done as of a certain date. It is possible to prepare a business appraisal at some point in the past. One benefit of this is that you have some ideas as to how things actually turned out. In fact, professional business appraisals are sometimes done as… Continue Reading
The concept of control premium in business valuation is this: to obtain control of a business the investor usually has to pay the per-share price that is higher than what a single share of the company stock sells for. Why would an investor seek a controlling share of a company? Because with control come a… Continue Reading
Valuation multiples are commonplace in business valuations. Their appeal is that it is easy to estimate your business value by comparison to sales of similar companies. Yet no two business enterprises are the same. How can you make sure that the valuation multiples you use give you the right answers about your company’s worth? Focus… Continue Reading
If you check the leading standards on business appraisal, all properly done business valuations require some sort of a report. In fact, the venerable Uniform Standards of Professional Appraisal Practice (USPAP) dedicate a complete Standard 10 to specifying the scope and format of a business valuation report. The idea is to communicate to others what… Continue Reading