Category Archives: Financial Planning

Relying on Management’s Estimates of Expected Cash Flow

Business valuations are often based on estimates of expected cash flow made by the company’s management. Even when estimates are prepared by a valuator or the company’s CPA, it’s often based on management’s representations about the company’s future plans about potential threats and market opportunities. So, it’s important to evaluate whether expected cash flow seems…  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 »

Tried-and-true Guidance for Valuing Private Business Interests

Revenue Ruling 59-60  The IRS originally created the landmark publication, Revenue Ruling 59-60, to outline the methods, approach, and factors to consider when valuing a closely held business for estate tax and gift purposes. Although it’s been around for nearly 60 years, today it’s often referenced in valuations prepared for other reasons, including divorce cases…  Continue Reading »

Writing Buy-Sell Agreements? Think Valuation First.

Buy-sell agreements protect business owners from unexpected events, such as disability or divorce, or a shareholder’s death. They are also helpful when owners disagree and want to buy out a difficult partner, or want to sell their interests. Unfortunately, valuation issues often take the backseat to legal issues, leading to irreconcilable differences when the agreement…  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 »

Consider Carefully the Weighted Average Approach in Projecting Future Earnings

The weighted average method of estimating the expected future earnings is based on the average or arithmetic mean. The weighted average of historical economic earnings is most appropriately used for calculating future earnings/cash flow when there appears to be a general pattern that may be extrapolated into the future. The pattern may be positive or…  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 »

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 »

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