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• Preface
• About the Editor
• About the Authors
• Acknowledgments
• Chapter 1 Introduction to Financial Valuation
• Who Values Businesses?
• Purpose of a Valuation
• Professional Valuation Organizations
• Standards of Value
• Premisel of Value
• Principles of Appraisal Practice
• Dates
• Approaches to Value
• Valuation Procedures
• Summary
• Addendum 1—Valuation Checklist/Ready Reference (Revenue Ruling 59-60)
• Addendum 2—International Glossary of Business Valuation Terms
• Addendum 3—AICPA Glossary of Additional Terms, Statements on Standards for Valuation Services VS Section 100
• Notes
• Chapter 2 Standards of Value
• Introduction
• How the Standard of Value can Affect the Final “Number”
• Premises of Value
• Common Standards of Value
• Common Operational Premises Underlying the Standard of Value
• Application of Specific Standards of Value
• Fair Value in Shareholder Dissent and Oppression
• Control Premiums
• Immediately Before
• Unless Exclusion would be Inequitable
• Extraordinary Circumstances
• Current and Customary Techniques
• Standard of Value in Divorce
• Fair Value in Financial Accounting
• Measurement
• Conclusion
• Notes
• Chapter 3 Research and Its Presentation
• Obtaining Internal Information
• External Sources of Data
• Research Techniques and Planning the Search
• Information Sources: Business Financial Databases
• Economic Research
• Selected Sources of Economic Information
• Industry Research
• Selected Sources of Industry Information
• Guideline Public Company and Guideline Company Transactions Research
• Sources for Guideline Public Company Data
• Guideline Company Transactions Databases
• Presenting Research in a Report
• Cost of Capital Research
• Other Sources of Information
• Summary
• Chapter 4 Financial Statement and Company Risk Analysis
• Historical Financial Statement Analysis
• Length of Financial History to be Used
• Spreading Financial Statements in Columnar Format
• Adjustments to Financial Statements
• Normalization of Historical Financial Statements
• Unusual, Nonrecurring, and Extraordinary Items
• Nonoperating Items
• Changes in Accounting Principle
• Nonconformance with GAAP
• Tax-Affecting the Earnings of Subchapter S Corporations and Other Adjustments
• Degree of Ownership Interest
• Normalization Adjustments
• Common Sizing Normalized Financial Statements
• Ratio Analysis (Quantitative Analysis)
• Comparative Analysis
• Risk Analysis (Qualitative Analysis)
• Macroenvironmental Analysis
• Addendum 1—Commonly used Financial Ratios: Application to Ale’s Distributing
• Notes
• Chapter 5 Income Approach
• Fundamental Theory
• Basics of Income Approach—“A Fraction”
• Income Approach Methodologies
• Normalization Process
• Adjustments for Ownership Characteristics
• Adjustments for GAAP Departures and Extraordinary, Nonrecurring, and/or Unusual Items
• Adjustments for Nonoperating Assets and Liabilities and Related Income and Expenses
• Adjustments for Taxes
• Adjustments for Synergies from Mergers and Acquisitions
• Determination of Future Benefit Stream (Cash Flows)
• Defining the Benefit Stream
• Defining Net Cash Flow
• Use of Historical Information
• The Capitalized Cash Flow Method
• The Discounted Cash Flow Method
• Terminal Value
• Capitalized Cash Flow Method (Revisited)
• Excess Cash Flow Method
• Best Practices
• Conclusion
• Addendum 1—Application of the Direct Equity Method (DEM) and the Invested Capital Method (ICM)
• Addendum 2—Dealing with Debt
• Addendum 3—Best Practices: The Terminal Year of a Discounted Cash Flow Model
• Conclusion
• Notes
• Chapter 6 Cost of Capital/Rates of Return
• Value Drivers
• Relationship between Risk and Return
• Characteristics of Cost of Capital
• Weighted Average Cost of Capital
• The Cost of Debt
• The Cost of Equity
• Risk-Free Rate (Rf)
• Equity Risk Premium (RPm or ERP)
• Beta
• Industry Risk Premium
• Size Premium (RPS)
• Company-Specific Risk
• Issues in Cost of Capital Application
• Cost of Equity Case Study
• Implied Returns from Market Data
• Emerging Equity Models
• Legacy Valuations: Using Ibbotson Data
• Venture Capital Returns
• Addendum 1—SPARC: Strategy/People/Architecture/Routines/Culture
• Addendum 2—Twenty Ways to Calculate the Cost of Equity Capital: A Case Study
• Notes
• Chapter 7 International Cost of Capital
• Background
• Estimating the Cost of Equity
• Developing the WACC (Appreciating the Differences between Debt and Equity)
• Analysis of Multinational Corporations
• Due Diligence: Company-Country-Currency-Sector Framework
• Case Study
• Technique for Considering a Large Portfolio of Countries
• Conclusion
• Notes
• Chapter 8 Market Approach
• Overview
• Level of Value
• Advantages and Disadvantages of the Market Approach
• Understanding the Subject Company
• Finding Guideline Companies
• Sources of Transaction Data
• The Direct Market Data Method
• Guideline Company Transactions Method
• Selecting Guideline Public Companies
• Basic Financial Indicators
• Comparing Guideline and Subject Data
• Adjustments to the Guideline and Subject Companies
• Concluding Remarks on Choosing Guideline Companies
• Calculating Standard Pricing Multiples
• Equity Versus Invested Capital
• Financial Statement Measures
• Computing Multiples
• Matching Price to Parameter
• Dispersion of Pricing Multiples
• Applying the Valuation Multiples
• Adjusting Pricing Multiples for Differences in Growth
• Adjusting the Guideline Multiples for Size
• Summary
• Notes
• Chapter 9 Asset Approach
• Theory
• Application
• Premise of Value
• Control versus Minority
• Built-In Gains Taxes
• General Steps in the Asset Approach
• Case Study
• Best Practices
• Addendum 1—Understanding Real Estate Appraisals
• Addendum 2—Understanding Machinery and Equipment Appraisals
• Notes
• Chapter 10 Valuation Discounts and Premiums
• Levels of Value
• Liquidity versus Marketability
• Entity-Level versus Shareholder-Level Discounts
• Controversial Issues
• Discounts for Lack of Control
• Levels of Noncontrolling Interests
• Control Premiums
• Alternative View on Premium for Control
• Conclusion
• Control and the Market Approach
• Discounts for Lack of Marketability
• DLOM on a Controlling Interest
• Tax Court Cases
• Empirical Evidence of Marketability Discounts
• Applying Study Data
• Quantitative Tools
• Factors Influencing Marketability
• Other Discounts
• Premiums Accorded Voting versus Nonvoting Stock
• Summary
• Notes
• Chapter 11 Report Writing
• Valuation Engagements
• USPAP Engagements
• Types of Valuation Engagements and Related Reports
• Detailed Valuation Report
• Analysis of Risk
• Other Business Valuation Reports
• Addendum—Sample Valuation Report
• History and Nature of Business
• General Economic and Industry Outlook
• Book Value and Financial Position
• Projections
• Approaches to Value
• Income Approach
• Cost of Capital
• Market Approach
• Guideline Public Company Method
• Guideline Company Transactions Method
• Reconciliation of Valuation Methods
• Conclusion of Value
• Appendix A—Assumptions and Limiting Conditions
• Appendix B—Valuation Representation/Certification
• Appendix C—Professional Qualifications of the Appraiser
• Appendix D—Other Sources Consulted
• Appendix E—Exhibits
• Notes
• Chapter 12 Business Valuation Standards
• History of Valuation Standards
• Government Action
• Organization of the USPAP Standards
• USPAP Business Valuation Standards (2016–2017)
• Other Business Valuation Standards and Credentials
• Summary
• Addendum 1—Standards: A Summary of The AICPA’S BV Standards
• Notes
• Chapter 13 Valuation of Pass-Through Entities
• Introduction
• Background
• Standard of Value
• Controlling Interests in Pass-Through Entities
• Applicable Tax Rates
• Noncontrolling Interests in Pass-Through Entities
• Treharne Model
• Van Vleet Model
• The S Corporation Economic Adjustment
• The S Corporation Equity Adjustment Multiple
• Mercer Model
• Grabowski Model
• Summary: Noncontrolling Interest in Pass-Through Entity Theory
• Bibliography
• Notes
• Chapter 14 Estate, Gift, and Income Tax Valuations
• Valuations in Estate and Gift Taxes
• Selected Internal Revenue Code Provisions
• Selected Treasury Regulations
• Selected Revenue Rulings
• Valuations for Income Taxes
• Notes
• Chapter 15 Valuation of Family Limited Partnerships
• Family Limited Partnership Uses
• Tax Advantages
• How Family Limited Partnerships Are Formed
• Other Characteristics of Family Limited Partnerships
• State Law, Property Rights, and Their Importance to the Valuation Process
• Improper Formation can Create Problems for Partners
• Valuation of Family Limited Partnership Interests
• Preliminary Considerations
• Valuation Process
• Illustrative Case Study
• Court Cases
• Notes
• Chapter 16 Summary of Tax Court Case Valuation Issues
• Tax Court Opinions
• Notes
• Chapter 17 Shareholder Disputes
• History of Shareholder Disputes
• Causes of Action
• Standard of Value
• Valuation Date
• Entire Fairness
• Valuation Methodology
• Valuation Adjustments
• Some Relevant Court Cases
• Court Case Caveats
• Conclusion
• Notes
• Chapter 18 Employee Stock Ownership Plans
• Introduction
• Purposes
• Requirements
• Tax Considerations
• Need for Valuation Services
• Adequate Consideration and Standard of Value
• Feasibility of Formation
• ESOP Share Ownership Characteristics
• Ongoing Operations
• Accounting Standards for ESOP Companies with Acquisition Debt
• ESOP Valuation Engagements
• Regulatory Environment
• Demand for Review Appraisal Services
• Additional Information
• Notes
• Chapter 19 Valuation in the Divorce Setting
• Standards of Value
• Premise of Value
• Goodwill—The Battleground for Divorce Valuations
• Defining Goodwill
• State Interpretations on Inclusion of Goodwill in the Marital Estate
• Personal versus Entity (Enterprise) Goodwill
• Allocation of Goodwill as Personal or Entity
• Applying the Factors to Separate Goodwill
• Role of Noncompete Agreements in Determining Personal versus Entity Goodwill
• Trifurcation of Goodwill and the Concept of Tradeable Personal Goodwill
• Personal Goodwill in Commercial Businesses
• Double Dipping in Divorce Cases
• Valuation of the S Corporation and Other Pass-Through Entities
• Restrictions on Data
• Range versus Specificity
• Professional Standards
• Valuation Methodology and the Application of Discounts
• Liquidity Myth in Pass-Through Entities
• Divorce Valuation and Bankruptcy
• Summary
• Notes
• Chapter 20 Valuation Issues in Small Businesses
• Common Characteristics
• Financial Statement Adjustments
• Qualitative Factors Affecting Value
• Valuation Methods
• Reasonableness Tests
• Summary
• Notes
• Chapter 21 Valuation Issues in Professional Practices
• Types of Practices
• Purpose of Valuation
• Professional Goodwill and Practice Goodwill
• Select Case Law for Marital Dissolution
• Factors Affecting Value
• Financial Statement Adjustments
• Valuation Methods
• Summary
• Notes
• Chapter 22 Reasonable Compensation
• Purposes for Analysis
• Types of Compensation
• Assessing Compensation
• Methods of Calculating Reasonable Compensation
• Divorce and the “Double Dip”
• Personal Goodwill
• Reasonable Compensation Job Aid for IRS Valuation Professionals
• Conclusion
• Notes
• Chapter 23 The Valuator as Expert Witness
• Introduction
• Pre-Engagement Considerations
• United States Requirements and Procedures Applicable to Expert Witnesses
• Daubert Motion
• The Ikarian Reefer
• Canadian Requirements Applicable to Expert Witnesses
• “Rules” for the Testifying Expert When on the Witness Stand
• Conclusion
• Notes
• Chapter 24 Fair Value Measurement and the Valuation of Intangible Assets
• Introduction
• Nature of Intangible Assets
• Reasons to Value Intangibles
• Fair Value Measurement
• Business Combinations
• Intangibles: Risk and Return
• Valuation Approaches to Intangibles
• Cost Approach
• Market Approach
• Income Approach
• Amortization Benefit
• Goodwill
• Financial Reporting Disclosures
• Statements on Standards for Valuation Services VS Section 100
• Case Study: Determining the Value of Goodwill and Other Intangible Assets in a Business Combination
• Notes
• Chapter 25 Marketing, Managing, and Making Money in a Valuation Services Group
• Purpose and Overview
• Chapter 26 Business Damages
• General Considerations in Damages Calculations
• Legal Principles Governing Damages
• Measurement of Damages
• Can Lost Profits Exceed the Fair Market Value of the Business?
• Considerations in Intellectual Property Damages
• Considerations in Securities Class Action Litigation
• Conclusion
• Notes
• Chapter 27 Other Valuation Service Areas
• A: Valuation for Public Companies and/or Financial Reporting
• B: Valuation Issues in Buy-Sell Agreements
• C: Valuing Debt
• D: Valuation Issues in Preferred Stock
• E: Restricted Stock Valuation
• F: Valuation of Early-Stage Technology Companies
• G: Valuation Issues Related to Stock Options and Other Share-Based Compensation
• H: Real Option Valuations
• I: Maximizing Shareholder Value
• Notes
• Chapter 28 Valuation of Healthcare Service Businesses
• Background
• Industry Factors
• Standard of Value
• Considerations for Valuing Healthcare Entities
• Valuation Process
• Control Premiums and Minority Discounts
• Discounts for Lack of Marketability
• Valuation Issues for Specific Healthcare Industry Niches
• Public and Private Healthcare Services Companies by Niche
• Notes
• Chapter 29 Determination of Compensation in the Healthcare Industry
• Background on Drivers of Compensation Assignments
• Regulatory Guidance
• Applicable Valuation Standards
• Compensation Elements
• Sources of Data
• Documentation
• Conclusion
• Notes
• Chapter 30 Special Industry Valuations
• Construction
• Oil and Gas Exploration and Production Valuations
• Radio
• Cable TV
• Restaurants
• Bars and Nightclubs
• Addendum 1—An Interview with a Business Broker-Valuator
• Notes
• Chapter 31 Valuation Views and Controversial Issues: An Illustration
• The Report
• Introduction
• Regional Economic Data (as of September 1, 20X5)
• Local Economy
• Industry Outlook
• Financial Analysis of the Company
• Appraisal of Fair Market Value
• Reconciliation of Valuation Methods
• Conclusion of Value on a Marketable, Control Basis
• Notes
• About the Website
• Addendums and Online Chapters
• Index
• EULA