Undervaluation can be costly The recent U.S. Supreme Court case, U.S. v. Woods, overturned legal precedent and signaled that accuracy-related penalties can be imposed in more instances. This broad interpretation exposes clients and practitioners to substantial penalties. In this article, three recent cases are summarized on how, when, and why accuracy-related penalties are applied. ...

Fifteen U.S. Representatives have sent a letter to the U.S. Small Business Administration (SBA) seeking clarification as to why the agency changed its requirements regarding real estate appraisers handling going concern appraisals for special use properties. In 2011, the SBA allowed appraisers to take on such projects after completing an eligibility course. As of January 2014, the agency changed its valuati ...

While most don’t see a benefit to speaking a second language in their personal or professional life, the increasing diversity of large cities and unexpected international elements in business deals is stressing its importance. Even though you may not remember any of your high school Spanish or German, it’s never too late start again, if for no other reason than the financial incentive involved. The Economis ...

Understanding the different aspects of an industry is key to evaluating a company’s future performance Understanding a subject entity’s industry is a hallmark of any good valuation report. Conducting a very detailed and intense industry analysis can provide valuation analysts with specific knowledge needed to determine an appropriate conclusion of value. As a general rule, a company’s performance is commens ...

Recent BV conference discusses DLOM for real estate LLCs This article contains a review of a recent business valuation conference presentation on determining a discount for lack of marketability (DLOM) for real estate holding companies. ...

Currently, 20 states and the District of Columbia allow some type of legal marijuana use.  On January 1st of this year, supply shops all across Colorado began selling to the general public (age 21 and over), in accordance with a voter referendum.  Medicinal use bills have been filed or are expected to be introduced in eight additional states, while full legalization bills like that of Colorado have been fil ...

It’s not as simple as it seems This article explores the fact that the valuation of a simple debt instrument, such as a promissory note, can be anything but simple. It is observed that the sum of unpaid debt, as well as accrued interest, may well overstate the value of the promissory note. Also covered is whether assets tied to notes need to be valued separately. ...

According to a recent report from the Office of the Inspector General (OIG) with the Federal Housing Finance Agency (FHFA), Fannie Mae and Freddie Mac continue to fail to properly analyze data collected from the Uniform Collateral Data Portal (UCDP) and take considerable risks when purchasing and guaranteeing single-family residential mortgages.  The report charged both Freddie and Fannie with not consideri ...

If you use a company's internally developed projections when developing a discounted cash flow estimate of value, what are the real risks? This article offers a practical guide to using a company's budget and plan for utilizing future projections in a discounted cash flow calculation. ...

The Journal of Accountancy is reporting that the SEC’s strategic plan for 2014-2018 contains an initiative that involves reviewing whether a “single set of high-quality global accounting standards is achievable”.  While not specifically mentioning the International Financial Reporting Standards (IFRS) the location in the 39-page document where the initiative appears also states that the consideration is par ...

Separability and transferability are key This overview examines intangible assets within business combinations through the lens of FAS 141. Fair value is covered as well as identification and classification protocols. ...

While real estate investment trusts (REITS) have strengthened their credit profiles in the last few years, Fitch Ratings is anticipating a decline in their positive rating for 2014.  According to Fitch, the upgrade/downgrade ratio for U.S. REITS has remained at 10:1 since 2011 and that most have now completed their deleveraging techniques.  As a result, representatives for Fitch expressed that “credit metri ...

Accuracy is everything This article provides an overview of the significance of regression analysis in business valuations, with a particular emphasis when applying the Market Approach. The theory is presented as to why regression analysis is superior to ratio analysis. ...

Has the Securities and Exchange Commission given M&A business brokers the “green light” to engage in securities transactions? The Securities and Exchange Commission (SEC) issued a January 31, 2014, No-Action Letter indicating it would not take enforcement action against an M&A broker contemplating a securities transaction. ...

Fannie Mae has officially launched a new website focused solely on appraiser quality monitoring.  The site is based on Fannie’s new appraisal review process, which was created to support data accuracy and consistency.  Through the site, lenders now have access to a list of appraisers whose reports are subject to a complete and thorough review by the agency, as well as those whose work is no longer accepted. ...

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 repla ...

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 determina ...

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 a ...

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 w ...

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 import ...