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 »

What’s the Outlook for FLPs?

For family limited partnerships (FLPs) and other family-controlled entities, the viability is uncertain. To curb what the IRS considers abusive estate planning practices involving these entities, in August 2016, the IRS proposed changes to the tax code. However, the proposal has been widely criticized for being too broad and general by business owners, practitioners and…  Continue Reading »

Site Visits are a Critical Part of the Valuation Process

See the site for yourself It’s critical to see a Houston, Texas business in person to value it, as well as businesses in other locations. Tax returns, financial statements, and marketing materials tell only part of the story. Especially in an adversarial situation, a written questionnaire doesn’t adequately bridge the gap. To get a comprehensive…  Continue Reading »

Finding Hidden Assets and Unreported Income

When valuing a Houston, TX business for divorce or shareholder disputes, the business valuation and forensic accounting disciplines often intersect. Controlling shareholders may, for example, try to hide assets or downplay cash flow to minimize buyouts of their spouses or minority shareholders. Valuation experts know how to unearth and adjust for financial misstatement, and are…  Continue Reading »

23 Questions to Ask When Hiring a Business Valuation Expert

Richard Claywell was recently a panelist for the Financial Poise webinar: Selecting the Right Valuation Expert for a Corporate Transaction. Richard provided valuable tips to business professionals and deal lawyers about how to identify and attain the right valuation expert for their situation. If you’re looking for a business valuation expert in Houston, TX or beyond, take…  Continue Reading »

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