Dissecting the Impact on Valuation Drivers What impact, if any, will the imposition of tariffs have on the valuation of assets? How will the imposition of tariffs impact modeling? In this article, the author shares his thoughts on the various factors and industries that valuation professionals must weigh to prepare a valuation. Economic Uncertainty in Valuation Economic uncertainty arises when key macroeconomic indicators—such as GDP growth, interest rates, and fiscal policies—become unpredictable. This unpredictability reduces the accuracy of forecasts and limits visibility into future performance. For valuation professionals, it complicates the modeling of cash flows and expands the range of…
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The Case for Use of a Risk-Adjusted Rate in Damages Cases Robert Dunn and Everett Harry laid out a process for modeling and discounting future lost profits to present value in their article, Modeling and Discounting Future Damages. Not all experts agreed with the position presented by Dunn and Harry. In March, we revisited modeling and its level of acceptance. This article revisits the more controversial portion of the Dunn and Harry article, determining the discount rate. Dunn and Harry believed modeling the projected income stream reduced uncertainty and risk in an expert’s estimates. Therefore, they stated a lesser discount…
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For Calculating Future Lost Profits Robert Dunn and Everett Harry published their oft cited Modeling and Discounting Future Damages in 2002. The article laid out the process for assessing future lost profits and discounting them to present value. They argued modeling future losses reduced the uncertainty related to the loss calculation and therefore reduced the risk premium to be included in the discount rate. They also argued modeling future losses and using a risk-reduced, relatively low discount rate was easier for judges and juries to understand. While their discussion on a risk-adjusted discount rate has been somewhat controversial, the need…
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The Public Company Accounting Oversight Board found 123 audit deficiencies related to fair-value estimates and asset impairments in 2010, making asset valuation the most common audit problem. Market volatility always makes it tough to value assets fairly based on market prices. But that doesn’t mean management forecasts—and the assumptions and methodologies of financial modeling used in corporate pricing—couldn’t benefit from additional scrutiny. Emily Chasan reports at the Wall Street Journal’s CFO Report blog: The Big Number: 123 That’s the number of audit deficiencies related to asset-valuation problems found among clients of the Big Four accounting firms in 2010. Market volatility…