Normalization of Income: Where Business Valuation Meets Forensic Accounting At the Legal Intelligencer blog, Terry Silver explains that since buyers and sellers often have differing ideas of a business’ true fair market value, normalization is usually a required part of any M&A deal: The valuation of virtually every closely held business requires normalization adjustments. Although these adjustments may be made to either the balance sheet or the income statement, the most common normalization adjustments are imposed upon the income statement. The International Glossary of Business Valuations Terms defines “Normalized Earnings” as “the economic benefits adjusted for non-recurring, non-economic, or other…
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Firehoses, Drinking Fountains, and Intrinsic Value CFA Magazine’sChristopher Wright recently spoke with four analysts about the challenges of identifying key share price drivers among the torrent of minutiae. The analysts cover a number of topics, and come from a variety of firms and industries. Here’s J.B. Groh, CFA, senior research analyst at D.A. Davidson in Lake Oswego, Oregon: [It is largely] about the importance of fundamentals over the longer term. Ultimately, the value of anything, whether it’s an investment property or a share of stock, comes down to cash flow, timing of the ash flow, growth, and risk. Of course,…
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Which States are Poised for Job Growth? As the U.S. jobs market digs its way out of the recession, gains aren’t expected to be evenly distributed. But some of the hardest-hit regions may also see some of the best growth, according to a new analysis, writes Phil Izzo at the Wall Street Journal Real Time Economics blog. Forecasting firm IHS Global Insight looked at which states will have the strongest rates of expansion through 2017. Do your own research with an interactive graph: Visit this site and click on any state to find out its projected jobs growth rate in…
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FASB Proposes Changes in Investment Accounting Michael Cohen reports at Accounting Today: The Financial Accounting Standards Board has released two proposed accounting standards updates to clarify the criteria for investment company accounting and develop guidance for investment property accounting. The proposed update for investment company accounting stems from the efforts of FASB and the International Accounting Standards Board to develop consistent criteria for determining whether an entity is an investment company. Under U.S. GAAP, investment companies carry all of their investments at fair value, even if they hold a controlling interest in another company. The primary changes proposed by FASB relate to…
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Jack Nicholson Takes Over E.U. Finance FT’s Alphaville Blog reprises an ECB press conference last week: Reporter: What is your answer to German people and economists who want the return of the DM? Trichet: You want answers? Reporter: I think the Germans are entitled. Trichet: You want answers? (SHOUTING) Reporter: Germans want the truth! (SHOUTING) Trichet: *You can’t handle the truth!* (SHOUTING) [pauses]… Trichet: Son, we live in a world that has prices, and those prices have to be guarded by men with bonds. Who’s gonna do it? You? You, Sylvia Wadhwa? I have a greater responsibility than you could possibly fathom. You weep for…
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FASB Approves Standard to Simplify Testing Goodwill for Impairment The Financial Accounting Standards Board (FASB) approved a revised accounting standard intended to simplify how an entity tests goodwill for impairment. Per the FASB: “The Board’s decision today comes as a direct result of what we heard from private companies, which had expressed concerns about the cost and complexity of performing the goodwill impairment test,” states FASB member Daryl Buck. “The amendments approved by the Board address those concerns and will simplify the process for public and nonpublic entities alike.” The amendments will allow an entity to first assess qualitative factors…
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Study: A Quarter of LPs Plan to Increase Allocations An overwhelming majority of investors who responded to a recent survey planned to maintain or increase their allocations to private equity, with high fees and a lack of transparency dissuading the remainder from committing more capital to the asset class. Clare Burrows reports at Private Equity International: Only 2 percent of the 411 investors and consultants surveyed by fund administrator SEI plan to decrease their allocation to private equity in the next 12 months, with 26 percent planning to increase their exposure. In the first of three reports based on the…
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In Silicon Valley, a Culture Clash Sullies a Romance Steven M. Davidoff reports on the New York Times DealBook blog: Private equity has broken venture capital’s heart, and V.C. is not taking it well. The romance ended when Silver Lake, the private equity firm, agreed to sell Skype to Microsoft. Silver Lake is estimated to be pocketing more than $4 billion from the sale. This would normally be a joyous event for Skype’s employees as they too share the wealth. But it is nothing of the sort. The venture capital community appears to be up in arms…
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CPA Exam Launched at International Test Sites Michael Cohn at Accounting Today reports: The U.S. CPA Exam was successfully administered at four international test sites: Japan, Bahrain, Kuwait, Lebanon and the United Arab Emirates. The American Institute of CPAs, the National Association of State Boards of Accountancy and Prometric said Monday that candidates took exams at the four locations abroad on August 1, the first time in history that the CPA Exam has been administered outside the U.S. and its territories. During the remainder of August, 1,165 candidates are expected to sit for 2,065 examination sections. Future month-long testing windows…
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Wild Market Quiets the Buzz for I.P.O.’s Evelyn M. Russli and Michael J. De La Merced at New York Times’ Dealbook: As stocks swing violently, a chill is beginning to settle on the initial public offering market. A small number of companies have already retreated on their offering plans. WageWorks, an employee benefits provider, pushed its offering, originally scheduled for Friday, to next week and dropped its target price range by as much as 43 percent. Two real estate investment trusts, Orchid Island Capital and Eola Property Trust, have withdrawn their filings. And Old Mutual, a big South African insurance…
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House lawmakers passed a bill today to overhaul the U.S. patent system for the first time in nearly 60 years, Nathan Koppel notes on the Wall Street Journal Law Blog: The House passed the America Invents Act on a 407 to 117 vote, WSJ reports. The bill would change how the U.S. grants patents and award them to the party which is “first to file” an invention instead of the “first to invent” it. The change would bring the U.S. in line with other countries, according to WSJ. The Senate passed similar legislation in March on a 95-to-5 vote. (Click here to see…
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David Wanetick, Managing Director at IncreMental Advantage, LLC, a valuation firm with expertise in valuing intangible assets and emerging technologies, based in Princeton, NJ, opines at The Business Insider: Valuing a patent is complex and imperfect. Below we’ll go into some detail surrounding the methods used to determine a patent’s value. Each is applied under different circumstances, and impacted by many factors. Some of these factors can be measured and quantified, while others are intangible and require expert judgment in order to attain a reasonably accurate estimation of value.
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Forbes reports: In the last (pre-drinking) session at the D: All Things Digital conference at the Terranea resort in Rancho Palos Verdes, California on Wednesday, we heard from Marc Andreessen, co-founder of venture capital firm Andreessen Horowitz, and founder of Netscape and various other tech start-ups. Chatting him up: Walt Mossberg and Kara Swisher. Perhaps the biggest takeaway from the session: Marc simply doesn’t agree that there’s a tech bubble, and in fact says there is plenty of evidence that the public markets actually hate tech stocks right now. . . . but New York Magazine in a feature called “Bubble Vision” has…
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More Feedback: Editor: I read the May 2011 QuickRead – “Tips for Valuators” concerning stub years. I have run into this issue several times and I have seen it misapplied many times and I am glad you wrote about the topic. I noticed two points in the article that I believe need further clarification. The first thing that I noticed in the article is that the PV factors need to be modified as well if you are discounting them using a stub year. The present value factors in the article are straight factors calculated using a mid-year discounting convention that…
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LinkedIn Features Booming CVA/AVA Activity Have you visited LinkedIn lately? The NACVA AVA/CVA Certification group as of this writing has 935 members. Follow the link and join in the conversation! This year is NACVA’s 20th Anniversary. What milestones do you remember being a part of? QuickRead’s Conversations with the Masters staff is preparing for an interview with Shannon Pratt. Do you have questions you suggest we pose him? Other LinkedIn conversations have ranged far and wide, with Association folks sharing information and offering tips on everything from how best to use the ValuSource Report Writer, the proper applicability of Benford’s…