In Palmerino v. Palmerino, the Massachusetts Court of Appealsconsidered whether a trial court erred in valuing the husband’s grocery store. The trial court’s approach had not included discounts—and went further to state that the income approach is preferable for valuation.  Find out what the court decides!  In Giaimo v. Vitale, the Supreme Court of New York considers the dissolution of a company called EGA ...

Capitalized Earnings: When are the Earnings Stabilized? When you're doing a business valuation, should you use a Capitalization of Earnings/Cash Flows? Or should you use a Discounted Earnings/Cash Flow method? Here's a rule of thumb: If the benefit stream will be constant over time, choose the Capitalized Earnings/Cash Flows. Richard Claywell explains. ...

Case Law—State: American Ethanol, Inc. v. Cordillera Fund, LP In American Ethanol, Inc. v. Cordillera Fund, LP, the Supreme Court of Nevada is required to weigh in on fair market value. A lower court had judged that stockholders were fairly paid some $1.75M (about $3 per share) for American Ethanol at the time of the merger. American Ethanol appealed, claiming it was worth more. Part of its argument was tha ...

The most highly anticipated IPO in history didn't put on much of a show. Facebook closed today within decimal points of its opening price of $38. Even so, the company's market cap is higher than McDonald's or Pepsico. Espen Robak is the president of Pluris Valuation Advisors, where he studies and values private companies trading on the secondary market. Derek Thompson at The Atlantic talked to him this morn ...

One of the problems with how financial institutions assess risk is that they rely on imprecise models.  Financial News'  Shanny Basar reports that in fact, just a few days before JP Morgan announced its multi-billion dollar trading loss, James Montier,a member of the asset allocation team at fund manager GMO, gave a speech on The Flaws of Finance. In the speech, delivered on May 6 at the 65th Annual CFA Ins ...

Blame Disaster on Bad Inputs. Black-Scholes Works. The last few years have given us plenty of reasons to hate financial models. Models that promised to increase efficiency and manage risk became substitutes for common sense and justifications for greed. The real estate bubble was of course justified by them. Yet people at hedge funds and trading firms, using models to mint money, remain passionate believers ...

Increased Scrutiny for Private Equity Valuations The U.S. Securities and Exchange Commission has started an informal inquiry of private equity firms, asking for a broad range of documents on how the funds value assets and who invests in them, reports Bloomberg's BusinessWeek.   The agency’s Los Angeles office last year sent letters to several firms asking for details on fund investments and the valuation of ...

How Divorce Can Affect Business Valuation Stanley Morganstern at the Ohio Family Law Observer reports that recent case in Ohio illustrates the difficulty of valuing business assets in a divorce. Courts should avoid "double dipping," or counting a business' income toward valuation and spousal support. Instead, judges are to separate current and future income from the business' material assets before making t ...

Alphabet Soup AccountingToday's Danielle Lee writes that "A growing roster of professional designations fosters credential-mania," among CPAs, and devotes an article to surveying some of the most popular credentials today, including those from NACVA: The CVA. The National Association of Certified Valuators and Analysts' CVA credential does require a CPA license, along with coursework and an exam. Establishe ...

Why Most Investors Don't Measure Returns Correctly At the NY Times Bucks: Making the Most of Your Money blog, Carl Richards opines: There’s an old saying that you should take a look at your checkbook and your calendar to see what you really value as opposed to what you say you value, because the calendar and the checkbook never lie. Dollars and cents are easy to count in the checkbook. Happiness, on the oth ...

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 d ...