There are many reasons for a client to need to determine the value of a company. Revenue Ruling 59-60 is the impetus for all business valuations (appraisals). There are three approaches that are utilized to value a business. The three approaches are the Asset-Based Approach, Income Approach and the Market Approach. Underneath each approach there… Continue Reading »
Category Archives: Debt & Financing
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 »
Valuators Can Take the “Stress” Out of Financial Distress
In the Houston area, and many other parts of the country, economic uncertainty persists. The American Bankruptcy Institute reported in the first quarter of 2016 that total commercial filings increased 24% from the year before. Valuation professionals can help businesses facing bankruptcy by determining whether liquidation or reorganization makes more sense, and provide guidance on… Continue Reading »
Spotlight on Discount Rates
People in the Houston area, and throughout the country, who rely on appraisal conclusions, such as judges and attorneys, are becoming more comfortable with the income approach as the business valuation discipline matures. But how does a business’s perceived risk translate into a reasonable discount rate? This is one of the most subjective, and contentious,… Continue Reading »
Adjusting long term debt in valuation
When we value a company, we need to adjust the balance sheet to Fair Market Value. I normally see the assets being adjusted to Fair Market Value but normally do not see the long-term debt being adjusted to its Fair Market Value. The long-term debt should be adjusted to its net present value using the… Continue Reading »
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 »
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 »