and its Application to Enterprise Valuation The value of a firm must equal the value of the claims on its assets. In practice, this is generally expressed as the value FIRM = value DEBT + value EQUITY. Similarly, in a balance sheet prepared in accordance with generally accepted accounting principles (GAAP), assets = liabilities and equity. By comparison, an economic balance sheet is constructed using market ...

Adherence to Development and Reporting Standards in Family Law Litigation Family law practitioners deal with a host of complexities when resolving matrimonial disputes.  In high net worth cases, financial considerations soon become paramount.  Often the largest financial asset on the marital balance sheet is an interest in a closely held business controlled and operated by the family or single spouse.  In t ...

Authored by: James R. Hitchner; R. James Alerding; Joshua B. Angell; and Katherine E. Morris The author provides a review of Discount for Lack of Marketability Guide and Toolkit, authored by James Hitchner; R. James Alerding; Joshua B. Angell; and Katherine E. Morris. ...

A Decision that Illustrates the Importance of Appraiser Independence To successfully work in the field of business valuation, appraisers must perform assignments with impartiality, objectivity, and independence, and without consideration of personal interests or the interests of those who hired them. Should such bias be found, the appraisal could be considered worthless and the expert’s reputation damaged, ...

Part II of II This is a two-part article. In this second part, the authors discuss valuation and the approaches used to value contingent assets and liabilities. Read Part I here. ...

Part I of II This is a two-part article. A variety of methods may be appropriate, depending on the context, to value contingent or disputed assets or claims in solvency opinions. These include probability discount, hindsight, and traditional valuation of future earnings. Other possibilities are the cost of insurance or Monte Carlo simulation. The authors discuss the cases and the uses and limitations of the ...

About the Use of Monte Carlo Simulation A number of our colleagues have released updated valuation and damages guidebooks. Despite these newer versions, none of these guidebooks discuss the use of statistics, modeling of time series, ARIMA, or Monte Carlo simulation. In this article, the author describes how the use of Monte Carlo simulation is gaining acceptance. ...

What Your Expertise is Worth When pursuing new engagements, financial consultants often face competition from others who are willing to accept below-market rates. This fee-based competition can be demoralizing and frustrating, but the tips shared in this article may help. ...

Does the IRS or Anyone Care? (Part II of II) Part one of this article presented the “current method” and “option pricing method” (OPM) for allocating value to common stock for 409a valuations, and how these two methods differ in pricing of common stock. Part two examines the implied changes made by OPM and how it affects stakeholders. The article begins with a brief review of the key impacts on the valuatio ...

Does the IRS or Anyone Care? (Part I of II) In part one of this two-part article, the author presents the two methods for allocating value to common stock for 409a valuations, and then show how they affect the pricing of common stock. By way of background, to meet FMV, the standard of value requires measuring value under the representation of a hypothetical willing buyer and a hypothetical willing seller, b ...

What Physicians Don’t Know About Their Agreements Could Hurt Them Nearly 45 years after the enactment of the federal Anti-Kickback Statute, it is still not uncommon to hear of physicians facing bribery allegations, large settlement amounts, and even jail time for breaking the statute’s anti-fraud measures. While evolving case law has certainly added to the complexities and prevalence of the statute’s enforc ...

Valuation of Intangible Assets Valuation practitioners may want to spend a few hours reading a recent U.S. Tax Court case where the valuation of intangible assets was squarely addressed. This QuickRead article highlights the facts and three issues addressed in the decision. ...

Context Matters This is the second of a two-part article. The first part, which addresses the efficient market hypothesis, is titled Proponents of the Efficient Market Hypothesis Always Want More Cowbell. Although many valuation practitioners are generally indifferent to context when valuing a business or asset, in litigation, as well as other areas that require valuation services, context matters. In this ...

Ascertaining the Financial Status of a Business in a Few Quick Glances The 60-Second Method is a system of ascertaining the financial status of a business or other entity in a few quick glances. It is a training tool that can be used to demonstrate how financial analysis works, or instruct decision-makers beginning to read and understand financial statement content. ...

Always Want More Cowbell The More Cowbell skit can be repurposed to explain debates over the efficient market hypothesis. Many proponents of the efficient market hypothesis may initially find it annoying that nonbelievers do not share their view. However, believers’ faith in the efficient market hypothesis is dependent on nonbelievers continuing to try, but inevitably failing, to ‘beat the market.’ The effi ...

Views Developed by an Appraiser Working with Business Brokers to Assess FMV Business appraisers typically assume that Price/Revenue, Price/SDE, Price/EBITDA and Price/EBIT, etc., are independent valuation methods. But, are they independent? This article shares my views on this subject matter and why they will lead to different conclusions of value. ...

Unsystematic Risk Premia in Privately Held Companies How does a valuation professional quantify and defend the unsystematic risk premia (URP)? Is the latter a factor that helps explain why CAPM is less frequently used valuing a privately held company? As for Total Beta, is that any better than the use of Beta? In this article, the author suggests if one accepts that imperfect diversification (ID) explains t ...

Its Approach to Approving Franchise Loan Applications This article summarizes changes implemented that affect SBA lending in the franchise context and that became effective in 2017. Within the franchise industry, financing backed by the SBA is one of the most important sources of funding for franchisees who wish to establish or grow a franchise. However, since the beginning of 2017, SBA funding within the f ...

Clinical Services (Part I of IV) In the March/April 2017 issue of The Value Examiner, the authors gave a detailed description of how clinical services for physicians can be calculated. QuickRead is pleased to present an overview of this series, which will be presented in four parts. Please look for the more detailed analysis in The Value Examiner. ...

Apply the Key Person Discount Is there any evidence that a key person discount exists? In this article, Steven Egna, shares his views on the subject matter and provides an illustration of the statistical basis for supporting such a discount. ...