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Economic Damages 101

As many businesses in Texas already know, business disputes arise daily. Maybe a publisher infringes on a writer’s copyright, a supplier violates a provision of an exclusivity contract, or a competitor steals a trade secret. Typically, these wrongdoings result in one party losing money. It’s up to the legal system to restore order — and…  Continue Reading »

Buy-Sell Agreements: How to Cover all the Valuation Bases

It’s common for businesses, in Houston as well as other locations, with more than one owner to need a buy-sell agreement to handle voluntary and involuntary ownership transfers. It’s also important to update the agreement regularly to ensure it’s still valid and addresses all of the business valuation issues that may arise. Determine which structure…  Continue Reading »

Family Businesses Bring Valuation Challenges

Typically a family-owned business isn’t run like a large public company. From the Rockefellers to the Kardashians, working together can bring out the best — and worst — in families. When valuing these entities, here are four key questions valuation experts ask. 1. Are family members on the payroll? Although some business owners hire family…  Continue Reading »

Consider the Cost Approach in M&A

A company’s value equals the difference between its combined assets and liabilities, so the cost approach has intuitive appeal. Although a cost approach analysis is laid out similar to a balance sheet, a document that most business owners are familiar with, it requires a substantial amount of work to convert a cost-basis balance sheet to…  Continue Reading »

Discounted Cash Flow vs. Capitalization of Earnings

Comparing two methods Under the income approach, future cash flow drives value. Although that sounds simple, there are several methods that fall under the income approach, including discounted cash flow and capitalization of earnings. How do these two commonly used methods compare and which one is appropriate for a specific investment? Here are some answers…  Continue Reading »

3 Reasons Why Selling Price Isn’t Necessarily a Cash-equivalent Value

When evaluating the time value of money, the saying “a bird in the hand is worth two in the bush” rings true. That is, depending on an investment’s risk and payout period, $1 paid out today could be worth more than $2 promised to be paid far in the future. Wondering how this concept relates…  Continue Reading »

Using a Yardstick to Measure Damages

A tried-and-true way to measure economic damages in contract breach, patent infringement and other tort claims is the yardstick method. It’s based on comparisons with similar businesses. Here are some additional details on how this method works — and when it might not work as well. Find guideline companies In damages cases, financial experts are…  Continue Reading »

Deal Price Doesn’t Always Represent Fair Value

John Douglas Dunmire v. Farmers & Merchants Bancorp of Western Pennsylvania, Inc., 2016 Del. Ch., C.A. No. 10589-CB, Nov. 10, 2016 Laws have been enacted by many states that grant dissenting minority shareholders the right to receive “fair value” for their shares. Appraisal rights provisions protect investors, who may not be “willing” sellers, from being…  Continue Reading »

3 Reasons Earnings May not Equal Cash Flow

Business valuation pitfalls Although price-to-earnings multiples may be shared by word of mouth in certain industries by business owners and business brokers may share, valuations based solely on these oversimplified rules of thumb won’t pass muster in court. And especially when pricing a business for sale, they shouldn’t be used as a sole method of…  Continue Reading »

Assessing Industry Risk is a Critical Part of the Valuation Process

Go beyond beta Industry risk isn’t something you factor in once and then forget about. The pros consider industry risk throughout the valuation process — and its relevance even extends beyond the income approach. Valuation professionals typically factor industry risk into the cost of capital, using a “beta” or other industry-specific risk premium. Here are…  Continue Reading »

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