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The National Association of Certified Valuators and Analysts® (NACVA®) has been educating and credentialing CPAs and other financial advisors to support business owners in understanding the value of their business for the past quarter century. NACVA’s  global Certified Valuation Analyst® (CVA®) designation is the most widely recognized valuation credential and the only business valuation credential accredited by the National Commission for Certifying Agencies® (NCCA®).

COVID-19

Highlights the “Good” and “Bad” Hindsight Debate Many predictions are doomed to fail whereas hindsight is undefeated. Predicting the future is very difficult due to the countless permutations that can occur. By contrast, anyone can observe what happened after the fact. Not surprisingly, it can be tempting to focus on the reliability of hindsight over the (typically) more relevant contemporaneous projections ...

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Demystifying Monte Carlo Simulation

Time to Revisit this Tool If you think Monte Carlo simulations are too complex to use in business valuation, you are not alone. There are three main reasons valuators shy away from using Monte Carlo analysis: 1) they do not totally understand it, 2) it involves statistical analysis and most would prefer not to relive their college statistics class, and 3) it is difficult to explain, especially to a jury. A ...

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How to Determine Fair Value

In a SPAC Merger Transaction The fair value of equity consideration issued in a merger involving a public company is generally calculated as the product of the quoted price for the individual equity instrument times the quantity issued (commonly referred to a “P times Q”). However, if the merger involves a special purpose acquisition company (SPAC), determining “P” can be subjective and may result in differ ...

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Managing Transfer Pricing in the Economic Downturn

Caused by the COVID-19 Pandemic Business leaders, tax practitioners, and attorneys are considering how to address the serious challenges that may arise from disruptions in commercial activities due to business closures, travel restrictions, and stay-at-home orders that were put in place in many countries around the world in order to reduce the spread of COVID-19. This is also impacting transfer pricing syst ...

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Where Do You Stand on “EBITDAC”

and “Voodoo” Economic Forecasts? One of the issues facing the business valuation community as well as business owners is the newly created accounting metric called “EBITDAC”, which stands for Earnings Before Interests, Taxes, Depreciation, Amortization, and Coronavirus. This is a non-GAAP accounting metric used by some companies today to raise more debts from lending institutions by adjusting or recasting t ...

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Estate of Aaron U. Jones v. Commissioner

The Court Opens to Tax-Affecting In Estate of Jones, the court addressed the tax affecting issue along with several other issues discussed in the valuation world today, including the proper approach for valuing an operating timber business (income vs. asset-based), the reliability of management projections, and the appropriate discount for lack of marketability. For the first time in 20 years, a valuation e ...

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Overview of Bankruptcy

Procedures and Bankruptcy Code Changes for CPAs and Consultants A business or individual facing financial distress can utilize three types of federal bankruptcies to attempt to resolve their financial difficulties. This article provides an overview of the differences and when each would be used. Keep in mind that bankruptcy is a legal proceeding and must be handled by an attorney. However, business and fina ...

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Construction Claims

Their Potential Impact on Valuing a Construction Contractor Construction claims may impact the value of a construction company. In this article, the author discusses the issues that arise and the methodologies that may impact the valuation. A construction claim is a demand made by the contractor to the owner for additional revenue for construction work performed on a construction project which is beyond the ...

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Task List

For When a Client Wants to Sell Their Business The authors in this article share a checklist developed and provided to firm clients contemplating a sell of their business. Following are the steps involved when a client wants to sell their business. Buyers can also use this list as a timeline and road map of the steps that are expected to occur and what is expected of them. ❏  Be sure client wants to se ...

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Valuation Treatment of the ESOP

Repurchase Obligation Liability There are certain valuation aspects that are unique to employee stock ownership plan (ESOP) sponsor company valuation engagements. The ESOP repurchase obligation is one of those aspects. There is a diversity of practice in the valuation profession as to how to treat the repurchase obligation for sponsor company valuations performed for ESOP administration purposes. There are ...

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ESOP Implementation Considerations

A Leverage ESOP versus a Non-Leverage ESOP An employee stock ownership plan (ESOP) is a qualified retirement plan that allows employees to hold equity in the sponsor company that employs them. There are various strategies that may be considered when the sponsor company forms an ESOP. One important structural decision regarding the ESOP formation is whether the ESOP will be leveraged or non-leveraged. This d ...

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Legacy Payments

Miscalculations and Entitlement Traps? What exactly is a “Legacy Payment”? Legacy Payments are those payments made to the prior generation when the next generation buys a family business. These payments include the debt service, principal and interest, on the purchase of the family business and possibly the real estate too; in addition, there are other types of Legacy Payments that can add weight to the tot ...

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Now What?

Thinking Through the Valuation Implications of COVID-19 As business valuation professionals, we are required to project the economic future of a business. In the past, valuation professionals used many sources of information to reduce the uncertainties inherent in valuation, key among them: 1) past performance, 2) industry reports, 3) company and/or stock sale data, and 4) cost of capital data. Now, valuati ...

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The Valuation Impact of Using the Wrong Leverage Ratio to Unlever Betas

Recognize and Avoid Substantial Valuation Differentials One of the critical inputs in the capital asset pricing model (CAPM) is beta. In practice, there are two typical ways beta is estimated. Making an incorrect assumption could lead to substantial valuation differentials of over 10% in many cases and can lead to valuation differentials of over 50% in some instances. In addition, our analysis indicates tha ...

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Impact of COVID-19 to Global Business Valuation and Appraisal

On April 8, 2020, the American Society of Appraisers (ASA), CBV Institute, Global Association of Certified Valuators and Analysts (GACVA), National Association of Certified Valuators and Analysts (NACVA), and The Royal Institution of Chartered Surveyors (RICS) collaborated to host a free virtual town hall to discuss how the COVID-19 pandemic will impact business valuation analysts and appraisal titled “Impa ...

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When a Purchase Involves Both Cash and Stock

Buyer and Seller Beware When a privately-held acquirer uses its stock to partly purchase a company, it is imperative that both the acquirer and the target in a transaction have support for, and a level of comfort with, the value assigned to the acquirer’s shares if they are being issued as part of the deal. It is especially important for the seller to conduct its own due diligence to better assess its risk ...

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Operating in the Post-Coronavirus Period

What Do We Do Moving Forward in Time? The coronavirus and the events unleashed by the outbreak were unforeseeable to professionals preparing reports as of the end of 2019. What do we, as valuation and litigation support professionals, do moving forward in time when we are engaged to value a business? Here, the author, Ron Rudich, answers these questions. Gary R. Trugman wrote in his tome, Understanding Busi ...

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The Land Estate

Valuation Issues for Wind and Mineral Surface Development Rights As wind energy has emerged as a leading source of energy, several issues have arisen with respect to the rights of parties holding surface and mineral rights. There are important legal issues that need to be explored to assess whether to develop a wind energy farm. This article provides a historical and brief legal overview of the issues. By t ...

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The Impact of the Coronavirus

On the Valuation of Small Businesses What is the impact of coronavirus on small businesses? What should valuation analysts consider in light of the stock market downfall when valuing a small business. The author shares his thoughts on the impact of coronavirus when valuing small businesses. The coronavirus pandemic is wrecking havoc on the global economy as we have seen last week with the stock market crash ...

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Application of Scenario Analysis for Computing Discount Rates

In Related-Party Cost Sharing Arrangements (Part II of II) This two-part paper demonstrates how the discount rate associated with the investment in intangibles developed under a cost sharing arrangement can be calculated using an analytical framework that explicitly considers variability of outcomes in profitability of the intangibles to be developed. Such framework is the probability-weighted scenario anal ...

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