Opinion: Where Revenue Ruling 59-60 Got it Wrong —BVWire News

A Valuation Principal Takes Issue With Revenue Ruling 59-60:  “Does Analysis of Macroeconomic Conditions Add Credibility to My Opinion of  Privately Owned Company Value In My Region?”

Rick Warner, ASA, AVA, Principal, Great Lakes Valuations writes that “Most of us as appraisers are familiar with Revenue Ruling 59-60 and its prescription for factors to be considered as part of the valuation of the stock of closely held companies  . . .   And while I agree with most of what 59-60 has to say, I do have a bone to pick . . .  with at least one of the eight factors.”  More: 

Section 4 of the ruling introduces eight factors to be considered by appraisers as we go about our business of valuing the stock of closely held companies. The second factor introduced in particular requires that we complete a careful analysis of “the economic outlook in general and the condition and outlook of the specific industry in particular.”

. . .  I’m not saying that an analysis of the economy and the industry is unimportant. In fact I think an analysis of the industry is critically important. With regard to an analysis of macro-economic conditions however, I’m not so sure . . . But here’s the question – does my analysis of macro-economic conditions really add anything to the credibility of my opinion of value for the stock of a privately owned company doing business here in northern IL? 

Let’s assume for a moment that one particular company that I was engaged to value was a $15 million (revenues) plastic injection molder. Pretty typical engagement for most of us. The “economic section” of my appraisal reports is generally built around information gleaned from the Federal Reserve’s “beige book”, the Business Roundtable’s quarterly “CEO Survey, the Institute of Supply Management’s Report on Business®, the Conference Board’s report on leading economic indicators, and other similar sources. So while I find it interesting, and helpful, and possibly even somewhat relevant that housing markets around the U.S. and in Chicago’s own 7th Federal Reserve District are enjoying a bit of a comeback is this macro-economic focus where I should be really spending my time?

I don’t think so.

Mr. Warner explains that his argument with 59-60 is the degree of emphasis between macro-economic and micro-economic issues. In his opinion, appraisers serve clients better by focusing on micro-economic issues. Read his full piece here. 

An Opinion: Revenue Ruling 59-60 Focuses Too Much on Macro-picture

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