In the “good old days” before the crash of 2008, Wells Fargo generated $100 billion in mortgage revenue every quarter. Now, it makes barely half that. As the largest US bank by market cap, it’s now seeking alternative business and product lines to fill that unfathomable financial gap. Sources say that Wells Fargo is exploring the idea that the virtual currency, Bitcoin, might be the perfect revenue replacement source. Now under consideration is how Bitcoin-related services or banking arrangements might be offered to virtual currency entrepreneurs. For more information on this unique turn of events, visit zerohedge.com. [button color=”blue” link=”http://www.zerohedge.com/news/2014-01-14/wells-fargo-americas-largest-bank-market-cap-pushing-offer-bitcoin-services”…
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In 2013, 30 percent of brokered deals and 31 percent of investment bank deals fell through after a Letter of Intent was signed. According to Pepperdine University’s Graziadio School of Business and Management, valuation gaps in pricing were the number one reason that M&A ventures failed. This was followed closely by non-fiscal demands from either party that were deemed “unreasonable”. Interestingly, economic uncertainty and a lack of capital were far less influential than they had been in years past. If there is plenty of cash available, then why are so many deals failing to close? Ilan Mochari shares the answers…
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According to Tax Court decisions Part 2 of this article examines the remaining eight most common mistakes made in valuation, based on U.S. Tax Court decisions. Court rulings may be right or wrong, but without taking sides, this article confirms the truism that experience is the best teacher. . [button color=”blue” link=”https://quickreadbuzz.com/2014/01/22/16-mistakes-avoid-valuations-part-1/” target=”_blank” font=”arial” align=”left”]Read Part 1[/button]
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Capturing value within the horizon using accounting-based valuation This article examines two alternative approaches to the Discounted Cash Flow (DCF) Method when seeking to capture the majority of total value within the horizon. A closer look is given to the Residual Enterprise Income (REI) Method as well as the Abnormal Enterprise Income Growth Method (AGR) in comparison to the DCF Method, and a determination is made as to which method is most effective.
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In a well-supported article by zerohedge.com, the author suggests a “fix” to the current problems with price-to-earnings (P/E) multiples. Among the questions answered are: Can P/Es tell us anything about stock valuations during periods of earning recessions? Is a bear market closer than we think? If so, when is the best time to buy? What do today’s inflated valuations mean for long-term returns? Why are outcomes so different when earnings are adjusted to account for mean reversion? The philosophy and figures are more than interesting when examined across a nearly 100-year sample, as this review does. You can read the…
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In a brief, but telling article from Inc.com, Jeremy Quittner cites statistics from the November 2013 Janus Monthly Equity Report that suggests the tech and social media industries may be heading for a burst of 1990’s proportions. This is due largely to the outrageously enormous public debuts of companies like Facebook and most recently, Twitter. The stratospheric valuations only become more unrealistic when considering these are companies that do not create or manufacture any tangible good or service. By and large, they don’t produce anything. The report itself warns, “…cloud computing and social media are bringing a level of disruption…
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According to Tax Court decisions Part 1 of this article examines eight of the 16 most common mistakes made in business valuation reports according to U.S. Tax Court decisions. Business valuation textbooks, training manuals, and conference presentations may do a good job of teaching the right ways to conduct valuations. But in some respects, the most authoritative teacher of what is right and, just as importantly, what is wrong is the decision of the court in a dispute over the value of a privately held business or shares thereof.
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The Black Scholes Model The true value of a stock option is often greater than its intrinsic value. This article takes a theoretical approach to valuation that focuses on the time value of money with the Black-Scholes Option Pricing Model.
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Income from intellectual property continues to be an increasing contributor to economic growth. Too often, however, the creator and financial advisor find themselves in a gray area when it comes to the changing tax laws surrounding patents and copyrights. Proper planning and a clear understanding of the most recent developments are essential when it comes to affecting the creator’s tax liability. In a thorough article from the AICPA’s The Tax Advisor, some of the most important issues regarding intellectual property and income are addressed, including: royalties as business and non-business income, appropriate deductions, exemptions from uniform capitalization rules, sale or…
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New technologies are emerging in the market to fast, that we barely acquaint ourselves with one before two more burst onto the scene. Not all of these advancements will impact our world or even still be around a decade from now. The ones that do last, however, will transform the economy and our lives in significant ways. In an extremely informative and interactive report by McKinsey & Company titled, Disruptive Technologies: Advances that will transform life, business and the global economy, twelve technologies are singled out as the most significant, with a projected $33 trillion yearly impact on global markets…
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The Frontline of Fraud Risk Management Internal fraud occurs as the result of a series of weaknesses within internal control systems, which are at the top of the fraud risk management pyramid. This article defines the three essential types of internal controls, their five interrelated components, and how they can be instituted for maximum protection.
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When is it appropriate for highway/heavy construction contractors? This article discusses the appropriateness of using the Asset-Based Approach for minority interests in companies where that approach results in higher value than the Income or Market Approach.
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More often than not, a company’s income statement isn’t a definitive disclosure of its revenue and expenses that investors can interpret clearly, easily and accurately. This is largely because income and expenses, as classified under GAAP, can be difficult to define. According to McKinsey & Company, savvy investors often have to reengineer statements to come up with figures that they’re even remotely comfortable with to use as a starting point in valuing future performance. In a well-written and straight forward article, McKinsey & Company explains the trouble with GAAP-based income statements and offers their “modest” proposal for revisions that…
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Everyone knows that in a merger or acquisition deal, time is not a friend. The longer transfer negotiations drag on without an agreement, the less likely a deal is going to be signed. This is mostly because over time, both parties are more likely to adopt adversarial positions. When things slow down, firms begin to assume the successor isn’t making the transaction a priority and may not the right candidate for their offer. Do they even have the capacity to handle such a venture? With each contract revision, the involved parties continue to reread the documents, often finding new problems…
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As experts, don’t we owe loyalty to ourselves and our profession? The article draws a parallel between the qualities that are needed to obtain the Eagle Scout designation and those that are necessary to serve as an expert witness.
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Fine art collectors and estate taxes Tax and estate planning is complex and constantly evolving. Choosing the appropriate strategy depends on the specific circumstances involved. It is critical for tax professionals, estate planning attorneys, and valuation analysts to understand the client’s precise needs and work collaboratively to achieve their stated goals.
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A view of the use and limits of option models (Part 2 of 2) Option pricing models (OPMs) are increasingly used to estimate the discount for lack of marketability (DLOM) in the business valuation profession. Some analysts disagree about whether OPMs are applicable for estimating the DLOM. Since OPMs were originally derived to determine option prices for publicly traded securities, many analysts question the merits of applying them to closely held securities. This discussion explores the controversies of applying OPMs to estimate the DLOM for nonmarketable securities.
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In an interesting interview with the Risk & Compliance Journal, David Hoffman, forensic accountant and managing director at Acuitas, Inc. discusses the status of the lawsuits that resulted from the bank failures that occurred in the years following the economic crisis of 2008. At the close of 2013, there were 81 lawsuits involving 127 different banks. Hoffman discusses his role as a forensic investigator in the proceedings, drawing similarities between the current situation and the S&L crisis of the 1980’s. He also shares his view of how current regulations impact his responsibilities within the investigative process and the part technology…
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Beginning this year, the PCAOB is making it a priority to examine whether or not firms that offer non-audit service lines are compromising the quality and accuracy of their audit services by doing so. In yet-to-be-scheduled roundtable discussions with audit firm leaders, regulators are expected to delve into the potential implications for such consulting arrangements. According to PCAOB chairman, James Doty, the review will focus on: 1.) how firms avoid having their best talent work in consulting at the expense of audit expertise and competence 2.) the risks associated with non-audit business lines 3.) how non-audit activities affect resource allocation…
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Business valuation in divorce In this article, Brian Murray examines the risks taken by clients when valuators are hired to “get the numbers” needed to support a desired outcome in divorce proceedings. In most cases, such a preplanned agenda backfires and creates more problems in the end.