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 adopted the Hamada Formula over the Fernandez Formula to unlever betas because it believed the Hamada Formula “is widely accepted, readily understood, and not subject to dispute about whether…
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Once a petition for Chapter 11 is filed with the bankruptcy court, the company usually undertakes a strategic review of its operations, including opportunities to shed assets or even lines of businesses. The Chapter 11 reorganization process concludes when the bankruptcy court confirms a reorganization plan which specifies a reorganization value and which reflects the agreed upon strategic direction and capital structure of the emerging entity. Travis Harms and Sujan Rajbhandary, both of Mercer Capital’s Financial Reporting Valuation Group, share some wonderful insight on this process. To read the full article in Mercer Capital’s Financial Reporting Blog, click: Valuation Expertise…
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on Business Valuations in Litigation In this article, Paul Fullerman, CPA, CVA, discusses techniques which can assist the accredited valuation professionals performing a business valuation.
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Being on the rise, dissenting actions are catching the eye of investors, attorneys, and other deal makers. Jay D. Wilson, Jr., senior member of Mercer Capital’s Depository Institutions practice, takes a look at why it is important an appraiser preparing a valuation of a bank in an appraisal action understand both valuation techniques and the banking industry. To read more about the results of this report in the Mercer Capital’s Financial Reporting Blog, click: Dissenting Shareholders and Bank Appraisals: Speak Now or Forever Hold Your Peace This article is republished from Mercer Capital’s Financial Reporting Blog. It is reprinted with…
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Assessing Solvency, Fraudulent Transfers, and Liability When Distributions are Made to Minority Shareholders The recent U.S. Tax Court case of Kardash v Commissioner, T.C. Memo, 2015–51 provides guidance regarding transferee liability and underscores how valuations are used to determine when and if a subject company is insolvent. The case also summarizes a number of defenses used (and rejected) to counter a claim of transferee liability.
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Discounted Cash Flow (DCF) valuation is simple at its core, yet often intimidates many says Aswath Damodaran, Professor of Finance at the Stern School of Business at New York University. You need one only theory to value companies that is based on the equation that the value of an asset is the value of the expected cash flows over its lifetime, adjusted for risk and the time value of money. To learn how to strip away the layers of complexity built into valuation over the decades and return to this simple equation, click the link below. [button color=”blue” link=”http://www.wallstreetoasis.com/blog/discounted-cashflow-valuations-dcf-academic-exercise-sales-pitch-or-investor-tool” target=”_blank”…
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The proper usage of company management-prepared projections when applying the Income Approach—Discounted Cash Flow Method—is an ongoing issue for any valuation analyst, especially as it relates to shareholder appraisal rights actions. The Delaware Chancery Court regularly provides guidance as to the proper usage of management projections when applying the Discounted Cash Flow Method within a dissenting shareholder appraisal rights action. This article highlights several historical and recent Delaware Chancery Court decisions, and it provides insights into the valuation analyst’s role in properly utilizing management projections when applying the Income Approach—Discounted Cash Flow Method—within a dissenting shareholder appraisal rights action.
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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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In re Bachrach: the U.S. Bankruptcy Court comments on the discounted cash flow and experts’ reports The discounted cash flow analysis (DCF) has been a standard valuation and damages method for many years. However, a U.S. Bankruptcy Court recently suggested that the “striking” disparity between experts’ conclusions in a case before the court “lends credibility to the concept that the discounted cash flow method is subject to manipulation.”
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I built an Excel file with a valuation model using Warren Buffett’s measure of “owner’s earnings.” In an interesting spin on valuation, analysts at AquaResearch applied what they call “Buffett-style, owner’s earnings” valuation calculations to the US Bancorp (USB) company stock in a DCF style approach. The author supports his review with a link to an excel file which completely lays out Warren Buffett’s valuation theory, that eschews traditional models relying on GAAP and/or price-to-earnings ratios. The analysis does require viewers to “register” at the site, but it’s free and absolutely worth a look at how the number shake out.…
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The Tax Court Speaks Loudly and Firmly on the Responsibilities of Business Appraisers Hempstead & Co. has published “Estate of Gallagher is a Valuation Tutorial.” The article emphasizes the importance of providing the court with a clear and convincing explanation of the assumptions and arguments you have employed in carrying out a business appraisal. It discusses the recent Tax Court Memorandum opinion in the Estate of Gallagher v. Commissioner, (TC Memo. 2011-148). The court’s valuation was closest to the value on the return as filed.
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Calculating Discounts Accurately Depends a Lot on Company Specifics. Here’s What You Need to Know Dennis Bingham and KC Conrad provide a thorough look at options for calculating a discount for lack of marketability (DLOM), including restricted stock studies, pre-IPO studies, theoretical and option pricing models, discounted cash flow (DCF), Mandelbaum factors, and more.
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GuruFocus Adds New Valuation Tab to Site; New Feature Automatically Calculates DCF Valuation. What are Top 10 The Nasdaq Community site notes the appearance of a new Valuation tab at its GuruFocus web site. Learn about how DCF analysis works, why it’s considered a reliable method of analysis, and view some top current stock picks of an investor who uses the method:
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Investopedia weighs in on the pros and cons of varying approaches: Business valuation is never straightforward – for any company. For startups with little or no revenue or profits and less-than-certain futures, the job of assigning a valuation is particularly tricky. For mature, publicly listed businesses with steady revenues and earnings, normally it’s a matter of valuing them as a multiple of their earnings before interest, taxes, depreciation and amortization (EBITDA), or based on other industry specific multiples. But it’s a lot harder to value a new venture that’s not publicly-listed and may be years away from sales. TUTORIAL: Valuing Employee Stock Options…
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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…