and the Process for the Valuation of a Closely Held Business (Part 1 of 2) Assessing shareholder value for either publicly held or privately held companies are two sides of the same coin. The U.S. capital markets have undergone significant changes in the past several years. This development in turn has had an impact on how these two types of companies are valued. Valuing public companies can be rather straightforward; valuing a closely held or private company is more challenging. In this series, the author will explore some of the methodologies available for valuing a closely held—or private—business.
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Particular challenges can arise in goodwill impairment valuation and accounting when a company acquires a business located in another country. When goodwill accounting standards are strictly applied, under U.S. GAAP or IFRS, the differences between write-offs taken in one country versus another should be minimal. This article delves into some of the notable differences in goodwill impairment conclusions worldwide. Greg Forsythe, CFA, ASA, director at Deloitte Financial Advisory Services LLP discusses methods to minimize these differences. To learn more about the minimizing goodwill impairment differences globally, click here. Image courtesy of Apple’s Eyes Studio/FreeDigitalPhotos.net
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Modeling Uncertainty to Gain Better Insight and Create Value Gary Lynch, founder and CEO of The Risk Management Project, proposes that uncertainty is the new normal and that firms that espouse risk management can create and preserve value. In this article, Lynch describes how his firm used quantitative models to assist a manufacturer assess how it should respond to a competitor’s price-reduction strategy and how the strategy would impact the supply chain. The analysis enabled the manufacturer to share the insight with suppliers that challenged the sustainability of the competitor’s strategy.
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The proper usage of company management-prepared projections when applying the Income Approach—Discounted Cash Flow Method—is an ongoing issue for any valuation analyst, especially as it relates to shareholder appraisal rights actions. The Delaware Chancery Court regularly provides guidance as to the proper usage of management projections when applying the Discounted Cash Flow Method within a dissenting shareholder appraisal rights action. This article highlights several historical and recent Delaware Chancery Court decisions, and it provides insights into the valuation analyst’s role in properly utilizing management projections when applying the Income Approach—Discounted Cash Flow Method—within a dissenting shareholder appraisal rights action.
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Phone fraud tops this year’s list of the biggest IRS tax scams of 2015, states Sally P. Schreiber, JD, senior editor of Journal of Accountancy, followed by phishing, identity theft, return preparer fraud, and hiding income offshore, rounding out the top five scams. The article delves into the many schemes, including suspicious e-mails, detecting identity theft, refund fraud, fake charities, and more, and includes details on identifying each of the dozen scams that will assist in providing taxpayer protection. To learn more about the top tax scams of 2015, click here. Image courtesy of Stuart Miles/FreeDigitalPhotos.net
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Thoughts from Experienced Litigation and Business Valuation Professionals Entering the Industry In this article, seasoned BV and litigation support professionals John DelGrego and Heidi Walker share why litigation can be invaluable to a BV professional. The co-authors also expound on the professional perils and high expectations placed by the Tax Court on expert witnesses. Expert witnesses must be objective, current on the law, and persuasive.
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In this article, Peter Rahe describes how he presents the subject of market multiples to attorneys. He also raises important questions about business valuation multiples.
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Corporations globally are faced with the complex problem of corruption, states Ravi Venkatesan in “Confronting Corruption” in McKinsey Quarterly. It takes many forms, and perpetrators are skilled in developing new ways to be corrupt and cover their tracks. In corporations, there are multiple types of corruption, including bribes, extortion, speed money, and employee fraud. The first steps into anti-corruption can be daunting and policies, controls, and culture together must be considered to fight and resolve the problem. To read the full article, click here.
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A Case Study An ESOP is one of many options available to business owners considering succession-planning options. There are substantial advantages, but there are also regulatory and cost considerations. A feasibility study may suggest whether the ESOP is an appropriate option. In this article, authors Kelly Finnell and Andrew Holmes share their views on when an ESOP is feasible using a case study.
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A Drop-Dead Plan for the Unprepared In this article, Edward Mendlowitz shares his views regarding the importance of having a buy-sell agreement. He proposes a “drop-dead plan” or method that, while imperfect, addresses how owners can arrive at an initial value that does not necessarily require a Conclusion of Value, especially if the owners are not related. Significantly, Mendlowitz stresses the importance of securing an agreement that addresses major life events to get the process started.
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A Note on ESOP Valuation[1] One of the most critical issues regarding valuation is the concept of adequate consideration. The ESOP trustee cannot pay more than “adequate consideration” for the stock it purchases.[2] In the context of an ESOP, ERISA defines adequate consideration as the stock’s “fair market value…as determined in good faith by the trustee…”[3] The proposed Department of Labor regulations define “fair market value” as the “price at which [the stock] would change hands between a willing buyer and a willing seller when the former is not under any compulsion to buy and the latter is not under…