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.
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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 filed in Vermont and New Hampshire. California has organized a committee to review how it can institute and oversee its own legal marijuana market. The reason states are getting into the marijuana…
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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.
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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 considering all the appraisal data provided to them through the UCDP, which was created in 2010 to improve loan quality and risk management. Indications were made that 56,000 loans purchased by Freddie and Fannie between January and June of 2013…
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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.
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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 part of a move to improve financial reporting practices worldwide. Although the SEC has studied the issue of allowing or mandating the IFRS for US public companies for years, administrators say rule-making duties related to federal legislation have prevented it from moving forward on…
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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.
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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 metrics may soon reach an inflection point.” For full details on the projected analysis, please visit the Appraisal Institute. [button color=”blue” link=”http://www.appraisalinstitute.org/ano/DisplayArticle/Default.aspx?volume=15&numbr=1/2&id=21205″ target=”_blank” font=”arial” align=”left”]Read Full Article[/button]
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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.
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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.
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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. Access to the list, which is updated monthly, is gained through the Technology Manager portion of Fannie’s website and is available to sellers and service providers alike. The monitoring site arises, in…
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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 replacement source. Now under consideration is how Bitcoin-related services or banking arrangements might be offered to virtual currency entrepreneurs. For more information on this unique turn of events, visit zerohedge.com. [button color=”blue” link=”http://www.zerohedge.com/news/2014-01-14/wells-fargo-americas-largest-bank-market-cap-pushing-offer-bitcoin-services”…
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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 determination is made as to which method is most effective.
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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 are outcomes so different when earnings are adjusted to account for mean reversion? The philosophy and figures are more than interesting when examined across a nearly 100-year sample, as this review does. You can read the…
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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 when considering these are companies that do not create or manufacture any tangible good or service. By and large, they don’t produce anything. The report itself warns, “…cloud computing and social media are bringing a level of disruption…
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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 importantly, what is wrong is the decision of the court in a dispute over the value of a privately held business or shares thereof.
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The Black Scholes Model The true value of a stock option is often greater than its intrinsic value. This article takes a theoretical approach to valuation that focuses on the time value of money with the Black-Scholes Option Pricing Model.
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New technologies are emerging in the market to fast, that we barely acquaint ourselves with one before two more burst onto the scene. Not all of these advancements will impact our world or even still be around a decade from now. The ones that do last, however, will transform the economy and our lives in significant ways. In an extremely informative and interactive report by McKinsey & Company titled, Disruptive Technologies: Advances that will transform life, business and the global economy, twelve technologies are singled out as the most significant, with a projected $33 trillion yearly impact on global markets…
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The Frontline of Fraud Risk Management Internal fraud occurs as the result of a series of weaknesses within internal control systems, which are at the top of the fraud risk management pyramid. This article defines the three essential types of internal controls, their five interrelated components, and how they can be instituted for maximum protection.
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When is it appropriate for highway/heavy construction contractors? This article discusses the appropriateness of using the Asset-Based Approach for minority interests in companies where that approach results in higher value than the Income or Market Approach.