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. ...

Moving Forward when Valuing Asset-Intensive Operating Companies In this article, Heidi Walker, the author, revisits the Tax Court and Ninth Circuit’s unpublished decision in Estate of Giustina and the Supplemental Memorandum Opinion issued by the U.S. Tax Court this past year. ...

ANAV Method Illustrative Example This discussion is the final installment of a series related to the asset-based business valuation approach. The prior discussion described the theory and methodology of the adjusted net asset value (ANAV) method. This final discussion presents an illustrative example of the application of the ANAV method. ...

In the Crosshairs of Regulators In this article, Mark Zyla of Acuitas discusses trends in fair value measurements in financial reporting and enforcement actions. Mr. Zyla notes that financial reporting is increasingly scrutinized by regulators. He observes that recent inspection reports of accounting firms that audit publicly traded entities by the Public Company Accounting Oversight Board (PCAOB) have indi ...

The Adjusted Net Asset Value Method This discussion is the fifth part in a series regarding the asset-based business valuation approach. Previous discussions described the theory and application of the Asset-based Approach. And, previous discussions described the theory and application of the asset accumulation (AA) method. This discussion describes the theory and application of the adjusted net asset value ...

Hotel Business Value QuickRead’s Technical Editor, Roberto Castro, reviews BVR’s What It’s Worth: Hotel Business Value.  There are few resources available for business valuation professionals that focus on the valuation of hotels.  The “go to” reference books have been Stephen Rushmore, MAI and Erich Baum’s Hotels & Motels: Valuations and Market Studies, a 2001 Appraisal Institute publication, and David ...

Asset Accumulation Illustrative Example The previous discussion in this series, part III, described the typical methodology and application of the asset accumulation (AA) method of the asset-based business valuation approach. This discussion presents an illustrative example of an AA method business valuation analysis. ...

Asset Accumulation Method This discussion is the third part of a series. Previous discussions introduced the theoretical concepts and the practical applications of the asset-based business valuation approach. This discussion describes one common Asset-based Approach valuation method: the asset accumulation (AA) method. ...

Common Analyst Misconceptions The first article in this series provided an introduction to valuation analysts (analyst) regarding the need to integrate and use the Asset-based Approach to value going-concern businesses and securities. This second installment addresses common analyst misconceptions regarding the use of the Asset-based Approach to value both asset holding companies and operating companies. ...

Introduction Valuation analysts are retained to value closely held businesses, business ownership interest, and securities for a variety of transaction, financing, taxation, accounting, litigation, and planning purposes. For each engagement, analysts consider the three generally accepted business valuation approaches: the Income Approach, the Market Approach, and the Asset-based Approach. However, most anal ...

A Critique of the Ibbotson Methodology In this paper, the author argues that the Size Premium in Excess of CAPM (and other similar size premium measures) should not be used by valuation practitioners because: a) it is inconsistent with the empirical evidence; b) it is constructed using a method that is inconsistent with how practitioners estimate their CAPM cost of equity; and c) it does not properly calcul ...

Part II of II This is the second of a two-part article. In this second part, Edward Mendlowitz illustrates how stocks can be acquired and what factors to consider when developing or modifying a stock portfolio. Read Part I here. ...

Use of Benninga-Sarig to Estimate Debt Betas in a Valuation Engagement In the July 8, 2016 In re Appraisal of DFC Global Corp. Opinion (DFC Opinion), the Court of Chancery of the State of Delaware suggested that debt betas should be estimated for individual companies and it cited Pratt and Grabowski’s Cost of Capital as a source for debt betas based on the firm’s credit rating. In addition, the Court also a ...