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Understanding Business Valuation

Author/Moderator: Gary R. Trugman, CPA/ABV, MCBA, ASA, MVS
Publisher: AICPA
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Description

Written for the CPA by a CPA, this course combines real-world experience and all of the fundamental information in an easy-to-digest style. Understanding Business Valuation is a great in-depth first course for those seeking to learn more about this hot, premium-priced service for clients and attorneys.

Objectives: 

  • Obtain an overview of the basic business valuation process
  • Accept the engagement, comply with professional standards and report the engagement results
  • Gather and analyze economic, industry and company analyzing data
  • Apply the market, asset and income approaches
  • Choose discount and capitalization rates as well as discounts and premiums
  • Understand the key IRS rulings

Prerequisite:  None

Table of Contents

  • Chapter 0
  • Beyond This Course
    • Business Valuation Essentials
    • ABV Credential Program: An Overview
      • What is ABV?
      • Mission
      • Objectives
      • Benefits of Becoming an ABV
      • The Pathway to ABV: How to Become a Credential Holder
    • Business Valuation and Forensic & Litigation Services Membership Section
      • Why Join the Section?
    • Appendix - AICPA ABV Examination CSO
  • Chapter 1
  • Overview of Business Valuation
    • Learning Objectives
    • Introduction
    • A Walk Down Memory Lane
    • Why Are Businesses Appraised?
      • Mergers, Acquisitions, Reorganizations, Spinoffs, Liquidations, and Bankruptcy
      • Allocation of Purchase Price
      • Estate, Gift, and Income Taxes
      • Marital Dissolution
      • Employee Stock Ownership Plans
      • Buy-Sell Agreements
      • Stockholder Disputes
      • Financing
      • Ad Valorem Taxes
      • Incentive Stock Option Considerations
      • Initial Public Offerings
      • Damages Litigation
      • Insurance Claims
      • Charitable Contributions
      • Eminent Domain Actions
      • Fairness Opinions
    • Who Values Businesses?
      • Business Appraisers
      • Accountants (CPAs)
      • Business Brokers
      • College Professors
      • Commercial Real Estate Appraisers
      • Investment Bankers
    • Professional Appraisal Organizations
      • The American Institute of Certified Public Accountants (AICPA)
      • The American Society of Appraisers
      • The Institute of Business Appraisers, Inc.
      • The National Association of Certified Valuation Analysts
      • The Association for Investment Management and Research
      • The Appraisal Foundation
    • Business Appraisal Standards
      • AICPA MCS Statement on Consulting Services Standards 1
      • IBA Standards
      • ASA Standards
      • Uniform Standards of Professional Appraisal Practice
      • NACVA Standards
      • Glossary of Business Valuation Terms
    • Conclusion
  • Chapter 2
  • Getting Started
    • Learning Objectives
    • Introduction
    • Learning about the Engagement
    • Deciding Whether to Accept the Engagement
      • Conflicts of Interest
      • Purpose and Function of the Engagement
      • Amount of Time Required to Do the Job
      • The Scope of the Assignment
      • The Type of Report to Be Issued
    • Engagement Letters
      • Description of the Scope of the Assignment
      • Detailed Description of the Appraisal Subject
      • Standard of Value That Will Be Used, Including the Definition of That Standard
      • Effective Date(s) of the Valuation
      • Type of Report That Will Be Issued to Communicate the Value Estimate
      • List of Assumptions and Limiting Conditions Expected to Be Part of the Report
      • Client Responsibilities
      • Method of Determining Fees and the Terms of Payment
    • Five Steps of an Appraisal Assignment
      • Engagement Letter Considerations for Litigation Reports
    • The Initial Document Request
      • Using a Standard Checklist
      • Setting up Multiple Checklists
    • Conclusion
  • Chapter 3
  • Appraisal Principles and Theory
    • Learning Objectives
    • Introduction
    • Principles of Appraisal
      • Principle of Alternatives
      • Principle of Substitution
      • Principle of Future Benefits
    • Definitions of Value
      • Fair Market Value
      • Fair Value
      • Fair Value - Financial Reporting
      • Investment Value
      • Intrinsic Value
    • How the Purpose of the Valuation Influences the Standard of Value
    • Internal Revenue Service Influence on Appraisals
      • Appeals and Review Memorandums 34 and 68
      • Revenue Ruling 59-60
      • Revenue Ruling 65-192
      • Revenue Ruling 65-193
      • Revenue Procedure 66-49
      • Revenue Ruling 68-609
      • Revenue Procedure 77-12
      • Revenue Ruling 77-287
      • Revenue Ruling 83-120
      • Revenue Ruling 85-75
      • Revenue Ruling 93-12
      • Technical Advice Memorandum 94-36005
      • Chapter 14 of the IRC
    • Conclusion
  • Chapter 4
  • Data Gathering
    • Learning Objectives
    • Introduction
    • What Items Affect Value?
    • Internal Information
      • Nonfinancial Information
    • External Information
      • Economic Information
      • Industry Data
      • Guideline Company Information
      • Other Data Sources
      • Merger and Acquisition Data
    • Data Gathering - Mostly Electronic?
      • What Is Electronic Data Gathering?
      • Data Providers and Vendors
      • The Internet
      • Sources of Economic Information
      • Economic Information
      • Other Information
      • Finding Publicly Traded Guideline Companies
      • Publicly Traded Guideline Companies - Financial Statement Information
      • Publicly Traded Guidelines Companies - Stock Quotes
      • Finding Acquired or Merged Guideline Companies
      • Cost of Capital and Betas
    • The On-Site Interview
    • Conclusion
  • Chapter 5
  • Data Analysis
    • Learning Objectives
    • Introduction
    • Economic Analysis
    • Industry Analysis
    • Subject Company Analysis
    • Financial Analysis
      • Comparative Company Analysis
      • Common-Size Financial Statements
      • Financial Ratios
      • Comparative Industry Analysis
      • Trend Analysis
      • Operational Analysis
    • Financial Statement Adjustments
      • Conversion of Cash or Income Tax Basis to GAAP
      • Tax Return Adjustments
      • Analysis of Historical Balance Sheets
      • Analysis of Historical Income Statements
      • Bardahl Analysis
      • Normalization Adjustments
      • Comparability Adjustments
      • Non-Operating/Non-Recurring Adjustments
      • Discretionary Adjustments
      • Normalizing the Financial Statements
    • Conclusion
  • Chapter 6
  • The Market Approach - Part I
    • Learning Objectives
    • Introduction
    • Guideline Public Company Method
      • Creating a List of Potential Guideline Companies
      • Get the Business Description
      • Size Criteria
      • For Those That Pass Muster
    • Using Valuation Multiples
      • Price to Net Earnings
      • Price to Pretax Earnings
      • Price to Cash Flow
      • Price to Sales
      • Price to Dividend or Dividend-Paying Capacity
      • Price to Book Value
    • Valuing Invested Capital Instead of Equity
      • Adjusting Public Company Multiples for Risk
      • Valuation Considerations
      • What Price Do We Use in the Multiples?
      • Regression Analysis
      • Adjusting Multiples Based on SGLPTL
    • Advantages of Using the Guideline Public Company Method
    • Disadvantages of Using the Guideline Public Company Method
    • The Guideline Public Company Method Illustrated
    • Conclusion
  • Chapter 7
  • The Market Approach - Part II
    • Learning Objectives
    • Introduction
    • Transaction (Merger and Acquisition) Method
      • IBA Market Data Base
      • BIZCOMPS
      • Pratt's Stats
      • Done Deals
      • Thomson Financial Securities Data (TFSD)
      • Business Brokers
    • Transaction Analysis - Qualitative and Quantitative
      • Qualitative Analysis
      • Quantitative Analysis
    • Let's Get Back to Theory
      • Advantages of Using Transaction Data Methods
      • Disadvantages of Using Transaction Data Methods
      • Words of Advice (I Would Call This Words of Wisdom, but You Know Better)
    • Internal Transactions
    • Industry Method
    • Conclusion
  • Chapter 8
  • The Asset-Based Approach
    • Learning Objectives
    • Introduction
    • Common Applications of the Asset-Based Approach
    • Advantages and Disadvantages of the Asset-Based Approach
    • Valuation Methods
      • Adjusted Book Value Method
      • Liquidation Value Method
      • Cost to Create Method
    • Working with Other Appraisers
    • How to Locate and Recognize Specialists
    • Conclusion
  • Chapter 9
  • The Income Approach
    • Learning Objectives
    • Introduction
    • Value Is from an Investor's Viewpoint
    • Advantages and Disadvantages of the Income Approach
      • Advantages of the Income Approach
      • Disadvantages of the Income Approach
    • Selecting Benefit Streams
      • The Nature of the Business and Its Capital Structure
      • The Purpose and Function of the Appraisal
      • The Particular Subject of the Valuation
    • Using Pretax or After-Tax Information
    • Debt-Free or After-Debt
    • Using Cash Flow Instead of Earnings
    • Defining Cash Flow
    • Projecting Future Benefit Streams
    • The Acceptance of Forecasts and Projections
    • Income Approach Methods
      • Capitalization of Benefits Method
      • Discounted Future Benefits Method
      • The Excess Earnings (Formula) Method
    • Conclusion
  • Chapter 10
  • Discount Rates and Capitalization Rates
    • Learning Objectives
    • Introduction
    • Discount Rates
      • Factors That Affect the Selection of a Discount Rate
      • Components of a Discount Rate
      • Comparing the Subject Company
      • The Build-Up Method
      • Capital Asset Pricing Model
      • Other Methods for Estimating a Discount Rate
    • Capitalization Rates
      • Factors Affecting the Selection of the Capitalization Rate
      • Sources of Data on Capitalization Rates
    • Deriving Discount and Capitalization Rates Applicable to Net Income Directly from the Market
    • Back to the Real World
      • Using Pretax or After-Tax Rates
    • Conclusion
  • Chapter 11
  • Premiums and Discounts
    • Learning Objectives
    • Introduction
    • Control Premium
    • Lack of Control (Minority) Discounts
    • Discount for Lack of Marketability
      • SEC Institutional Investor Study
      • Gelman Study
      • Moroney Study
      • Maher Study
      • Trout Study
      • Standard Research Consultants Study
      • Willamette Management Associates, Inc. Study
      • Silber Study
      • FMV Study
      • Management Planning Study
      • More about the DLOM
      • A Real-World Consideration
    • Small Company Discount
    • Discount from Net Asset Value
    • Key Person Discount
    • Application of Discounts and Premiums
    • Other Premiums and Discounts
    • Conclusion
  • Chapter 12
  • Revenue Ruling 59-60
    • Learning Objectives
    • Introduction
    • Revenue Ruling 59-60
    • Conclusion
  • Chapter 13
  • The Valuation Report
    • Learning Objectives
    • Introduction
    • Components of a Valuation Report
      • Letter of Transmittal
      • Description of the Assignment
      • Sources of Information Used in the Appraisal
      • Assumptions and Limiting Conditions
      • Economic Data
      • Industry Information
      • Subject Company Information
      • Financial Statement Analysis
      • Valuation Section
      • Appendixes, Schedules, and Exhibits
    • Types of Valuation Reports
      • Formal Reports
      • Informal Reports
      • Letter Reports
      • Oral Reports
    • Preparing the Business Valuation Report
      • Federal Rules of Civil Procedure
      • Using Your Report as a Selling Tool
      • Using the Other Side's Report to Help Sell Your Opinion
      • Understanding the Weaknesses in the Valuation Process
      • Appraiser, Protect Yourself!
    • Defending the Business Valuation Report
    • Common Errors in Business Valuation Reports
    • The Reconciliation Process
    • Conclusion
  • Chapter 14
  • Ethics Focus: Consulting Services
    • Ethics Overview
    • Interpretation 101-3
    • Key Ethical Dilemmas
    • Addressing Ethical Dilemmas
    • Available Resources
  • Chapter 15
  • Latest Developments
  • Appendix 1
  • Statement on Standards for Consulting Services
  • Appendix 2
  • Institute of Business Appraisers - Business Appraisal Standards
  • Appendix 3
  • American Society of Appraisers
  • Appendix 4
  • NACVA Professional Standards as of May 31, 2002
  • Appendix 5
  • International Glossary of Business Valuation Terms
  • Appendix 6
  • Revenue Ruling 59-60
  • Appendix 7
  • Revenue Ruling 65-192
  • Appendix 8
  • Revenue Ruling 65-193
  • Appendix 9
  • Revenue Procedure 66-49
  • Appendix 10
  • Revenue Ruling 68-609
  • Appendix 11
  • Revenue Procedure 77-12
  • Appendix 12
  • Revenue Ruling 77-287
  • Appendix 13
  • Revenue Ruling 83-120
  • Appendix 14
  • Revenue Ruling 85-75
  • Appendix 15
  • Revenue Ruling 93-12
  • Appendix 16
  • Technical Advice Memorandum 94-36005
  • Appendix 17
  • Business Valuation Resources

Excerpts

Videocourse Details

NASBA Field of Study: Management Advisory Services
Level: Basic
Recommended CPE Credit: 31
Important Information on Your CPE Credit
UNDERSTANDING BUSINESS VALUATION TX08
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