Summary and Solutions Morningstar announced in September 2013 it will discontinue publishing the SBBI Valuation Yearbook, but that it will continue to publish the Ibbotson SBBI Classic Yearbook. James Harrington, who was previously director of business valuation research in Morningstar’s Financial Communications Business, provides a summary of which data is being discontinued and continued, along with a discussion of alternative data sources in light of the recent announcement.
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According to the Wall Street Journal, now would be a good time to sell a business. When examining the small-business-for-sale market, transactions are up significantly from this time last year. In 2012, there were 1,189 small businesses sold between July and September, while 2013 has surpassed that total with 1,685. The upswing in sales has been mostly in service companies, followed by retailers and restaurants. For more specs on the ideal business to sell right now, you can read the full story here. [button link=”http://online.wsj.com/news/articles/SB10001424052702304682504579153573588055100?tesla=y” color=”silver”] View Full Article[/button]
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In defense of the Discounted Cash Flow Method Richard R. Conn challenges criticism of the Discounted Cash Flow Approach and premise that the Market Approach is superior to an Income-Based Approach, even when there is more just superficial observations. The author proposes that “ it is important to realize that the circumstances in which the DCF Method indicates a different value than the market price should be very rare and unique. If the legal community is finding a multitude of expert valuation opinions where the DCF conclusions are at odds with the market evidence, then those litigators have a valid…
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Beyond an all-or-nothing approach This overview examines the circumstances under which S corporations may or may not be tax affected. Particular emphasis is placed on family law engagements, which do not always involve a consistently defined standard of value, which creates much confusion for valuation analysts.
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In case you missed it, the Professional Standards and Guidance Committee (PSGC) of the Appraisal Institute (AI) submitted its official comments to the Appraisal Standards Board of The Appraisal Foundation regarding feedback to drafting changes to the 2016-2017 USPAP. In its candid response, AI says USPAP has a “mixed record” when it comes to addressing appraiser behavior in a way that establishes public trust with the profession. Also at issue is the USPAP definition of “bias” with AI favoring a more specific, two-part definition and test of bias. When asked if USPAP is too complex, the response also lays…
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In its Washington Report and State News web section, the Appraisal Institute (AI) recently reported that the U.S. Small Business Administration (SBA) released an updated Standard Operating Procedure 50-10 5 F. The update institutes guidelines for SBA lenders making use of SBA credit assistance. The alteration affecting valuation involves business and intangible assets in circumstances where there is a change in ownership, a special use property, and a residual business value contribution of more than $250,000 to the loan amount. In scenarios meeting these criteria after January 2014, the SBA will require lenders to obtain a separate business appraisal from…
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Just because a corporate stock price is on the rise, is that justification enough for the huge payouts executives receive? While shareholder returns are usually the most prominent factor considered by corporations when determining executive pay, many elite business school educators and industry experts don’t think they should be. They contend that executives regularly profit off short-term bullish markets where returns had little or nothing to do with their operations, strategy or lack of innovation. In an interesting piece by The New York Times, experts suggest that executive pay should be tied more closely to what management did to increase…
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In an article titled, “PCC to Ask FASB to Endorse First Private Company GAAP Exceptions”, under the subhead, “Business combinations”, the Journal of Accountancy reveals that the Private Company Council (PCC) approved a proposal to FASB that would allow a private company to elect to amortize goodwill acquired in a business combination on a straight line basis over 10 years or less. The proposal is conditional on the fact that an entity can prove that another useful life is more fitting based on demonstrable facts. The proposal also contains simplification of the impairment test for goodwill. [button link=”http://journalofaccountancy.com/News/20138826.htm” color=”silver”] View…
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A review of BVR’s Guide to Discounts for Lack of Marketability. If you are looking for a comprehensive source of information about the DLOM and the cases that business appraisers consider for confirmation of a method, look no further than BVR’s Guide to Discounts for Lack of Marketability, Fifth Edition by John Stockdale, Sr.
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The standard 10 stages to use in an intangible asset engagement In this second installment, Robert F. Reilly completes his review of the 10 typical stages of any intangible asset analysis engagement. For purposes of this article, an intangible asset analysis may include a valuation, damages analysis, transfer price study, or other economic analysis. The business appraiser will typically consider these stages, or elements, before, during, and after performing any quantitative or qualitative analyses.
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The standard 10 stages In this first half of his two-part series, Robert F. Reilly summarizes six of the ten typical stages of any intangible asset analysis assignment. For purposes of this article, an intangible asset analysis may include a valuation, damages analysis, transfer price study, or other economic analysis. The business appraiser will typically consider these stages, or elements, before, during, and after performing any quantitative or qualitative analyses.
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How we define tangible and intangible assets is paramount to accuracy and fairness in valuation. In this article, Dr. Carl Sheeler, responds to a September 9, 2013 concept paper authored by Rick Baumgardner, Chair of the Appraisal Practices Board of the Appraisal Foundation, titled “Valuation Issues in Separating Tangible and Intangible Assets.”
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Things change because markets are not logical; markets are emotional. In an analysis featured on CNNMoney.com, Ben Horowitz lays out the specific challenges of raising capital and valuing startups in the current economic climate. In an eye-opening comparison, he looks at the price/earnings ratios (P/E) of all S&P 500 IT companies for the last 18 years. With this wide of a time span, one might expect some form of predictability or modest stability to appear. In fact, the results fluctuate so wildly that the average company with $10 million in earnings and valued at $210 million in 1995 would have…
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An alternate business valuation report format This article briefly describes an alternate format for business valuation (BV) reports that can make them more understandable.
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Structured settlements are a useful tool, but not always advisable! There is plenty of acrimony in marital dissolutions. One way to possibly address the financial concerns of all and reduce acrimony is to consider the use of a structured settlement. A structured settlement replaces one lump payment with smaller payouts over time. It’s a concept frequently used in workers’ compensation or tort cases, but more often, these types of settlements are also being used in divorces. The structured settlement can be an effective tool or prolong the ill will and costs of divorce.
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In their recently released Beige Book, the Board of Governors of the Federal Reserve System break down the economic performance of the nation within seven business sectors across 12 metropolitan economic districts. Prepared at the Federal Reserve Bank of San Francisco, the findings are based on all data collected on or before August 26, 2013. Business sectors covered include consumer spending & tourism, nonfinancial services, manufacturing, real estate & construction, banking & finance, agriculture & natural resources and employment, wages & prices. Participating districts include Boston, New York, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, St. Louis, Minneapolis, Kansas City, Dallas and…
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According to the US Bureau of Economic Analysis, “research and development” (R&D) are now considered a fixed investment. The report, released last month, contains GDP figures categorizing R&D with this distinction. R&D now joins software in a new category labeled “intellectual property products”. While some see the change as only affecting a small number of economists, others see the move as bridging a gap between digital economy and the way analysts account for it. McKinsey & Company provide a solid review of what the change means here. “[Intangible digital capital assets] are manifold: the unique designs that engage large…
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Valuing Nokia Siemens Networks Nokia Corporation is bound to look very different after Microsoft buys its devices division. When the initial purchase was announced, most in the industry were shocked. The bigger question is: How much will the remaining parts of the company be worth once the deal is done, and how should they be valued? Analysts from JP Morgan Cazenove provide a very interesting breakdown in a feature first published by Valuewalk.com. “The analysts set Nokia Corporation (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V)’s patent licensing business apart, calling it a “new separate business at Nokia.” As a result, they said it also…
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Working within the DLOM ambiguity This review examines the impact of volatility as a risk factor in the discount for lack of marketability (DLOM) and answers questions regarding the flexibility of adjustment periods.
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The IRS recently issued regulations (T.D. 9630) affecting how the differential income stream approach applies to cost-sharing agreements. Nearly two years ago, “final” cost-sharing rules were published under Sec. 482. This newer round of regulations is intended to ensure that cost-sharing agreements are in line with Sec. 482’s commensurate-with-income principle. In its earlier attempt to guarantee pricing practice in all cost-sharing agreements, the IRS instituted the income, acquisition price, and market capitalization methods. The motives of the IRS and a summary of the new regulations are provided by Sally Schreiber, senior editor at the Journal of Accountancy, along with links…