Category Archives: Business Plans

Appraisal Distinctions: Earnings and Debt Play a Key Role in Determining Proper Use of Weighted Average Cost of Capital (WACC)

Valuation principle 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? This article expands on…  Continue Reading »

Advice When Using the Weighted Average Approach to Project Future Earnings

The Weighted Average Method of Estimating Expected Future Earnings is Based on the Average or Arithmetic Mean. Here’s Why that’s Important: Companies that are growing in revenue need to be valued regularly, and they need to be valued with their future growth in mind The weighted average approach is a valuable tool but Richard Claywell…  Continue Reading »

Why Using a Mentor is Key to Building the Value of Your Firm’s Work

Good Mentors Not Only Catch Errors, but Speed Professional Development, Provide Perspective, and Help Build Your Company Brand The mentoring process is invaluable, explains Baria Jaroudi. That’s not simply because it provides a proofread and detail check, or even because it strengthens professional development and solicits team expertise and new perspectives. Perhaps most importantly, strong…  Continue Reading »

Be Careful When Using EBITDA for the Terminal Valuation Calculation

If you’re going to construct consistent valuations, use earnings instead of cash flows in your calculations. Why is it important to be consistent? Because you have to calculate a discount rate based on one or the other. Richard Claywell explains. I was recently asked to review a report prepared by another expert. The other expert…  Continue Reading »

Goodwill in an Aquisition

Summary: Richard Claywell was recently asked to review a business valuation report when a company was sold for $91 million. The appraisal report shows sales of $116 million, profit margin of $28 million, an “approximate” multiple of 3.25 and a value of $91 million. The appraiser assigned 80% of the sales price to personal goodwill.…  Continue Reading »

Preparing a Discounted Cashflow

Summary: Valuators commonly need to perform a valuation using a “stub year,” or a date other than the company’s year end. This requires forecasting projected future company operations. It’s critical when performing this forecast that valuators not project historical data forward, and instead perform a new assessment for the new year. Here’s why. Included is…  Continue Reading »

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