Understanding Business Valuation
Author/Moderator:
Gary R. Trugman, CPA/ABV, MCBA, ASA, MVS
Publisher:
AICPA
Availability:
In Stock
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
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
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
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NASBA Field of Study:
Management Advisory Services
Level:
Basic
Recommended CPE Credit:
31
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