When it comes to money, “enough” is the hardest word to define in the English language. The challenge of defining “enough” extends to corporate managers deciding what cash balance is appropriate. Travis Harms, lead of Mercer Capital’s Financial Reporting Valuation Group, takes us through the data offering helpful tips. To read the full article in Mercer Capital’s Financial Reporting Blog, click: Is Cash Always King? This article is republished from Mercer Capital’s Financial Reporting Blog. It is reprinted with permission. To subscribe to the blog, visit: http://mercercapital.com/category/financialreportingblog/.
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The magnitude of the equity risk premium, or required return in excess of the risk-free rate, is a perennial question for valuation specialists. Travis Harms, Mercer Capital’s Financial Reporting Valuation Group lead, explains that the aggregate equity premium is typically broken into two pieces: 1) a market risk premium, and 2) a size premium. To read the full article in Mercer Capital’s Financial Reporting Blog, click: A Market Participant Perspective on the Size Premium. This article is republished from Mercer Capital’s Financial Reporting Blog. It is reprinted with permission. To subscribe to the blog, visit: http://mercercapital.com/category/financialreportingblog/.
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Capital structure decisions have long-term consequences for shareholders. The purpose of this whitepaper is to equip directors and shareholders to contribute to capital structure decisions that promote the financial health and sustainability of the company. To read the full article in Mercer Capital’s Financial Reporting Blog, click: Capital Structure in 30 Minutes. This article is republished from Mercer Capital’s Financial Reporting Blog. It is reprinted with permission. To subscribe to the blog, visit: http://mercercapital.com/category/financialreportingblog/.
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Dell Inc. engaged in a management buyout (“MBO”) in October 2013 that effectively took the Company private, leaving Michael Dell in control (75% of its stock) with a financial sponsor (25% of its stock). This week, Vice Chancellor J. Travis Laster of the Delaware Court of Chancery filed an opinion in In Re: Appraisal of Dell Inc. determining the fair value of the dissenters’ shares. This post looks to see who the “winners” and the “losers” were in the appraisal action, and in the transaction itself. Z. Christopher Mercer, Founder and CEO of Mercer Capital, explains. To read the full…
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Understanding the nature and risk of expected cash flow This discussion summarizes the interrelatedness of the weighted average cost of capital and the weighted average return on assets within the context of a purchase price allocation for financial reporting purposes. Failure to understand this fundamental relationship can lead to inaccurate estimates of value for the acquired assets and, therefore, inaccurate reported asset values and amortization expense on the financial statements of the acquirer. The WACC can be viewed as a weighted average of the required rates of return for the individual assets of the acquired company. The selected intangible asset…
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Can private companies really increase their value 80-100 percent by limiting unsystematic (controllable) risks? The November/December 2013 issue of The Value Examiner featured Ken Sanginario’s article entitled, “The Valuation Business: A Strategic Road Map for Success.” In this article, Sanginario answers questions raised by skeptics to make the case that value doubling for private companies is possible.
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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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Choosing an Appropriate Weighted Average Cost of Capital Definition Sometimes Depends On Context Valuation principles generally hold that the value of a business is largely a function of return on invested capital and growth, writes J. Richard Claywell, since these are the primary drivers of free cash flow. But how does this cash flow relate to the asset and liability values on the balance sheet?
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When Valuators Use a Weighted Average Cost of Capital (WACC) to Determine a Discount Rate, the Rate Needs to Be “Iterated.” Here’s Why. When an expert determines a discount rate for a controlling interest in a valuation using the Weighted Average Cost of Capital (WACC), that discount rate needs to be iterated. Since market values of debt and equity in a closely held company are not publicly traded and known, as Richard Claywell explains, the iteration process is necessary. It’s the only way to demonstrate the validity of using an industry average capital structure. Without iteration your discount rate—and proposed…