Valuing a Business, 5th Edition

Name: Valuing a Business, 5th Edition | The Analysis and Appraisal of Closely Held Companies
Brand: McGraw-Hill Education
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The Analysis and Appraisal of Closely Held Companies

Shannon Pratt(Autor*in)

McGraw-Hill Education (Verlag)

5. Auflage

Erschienen am 16. Januar 2008

1144 Seiten

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Beschreibung

Capitalize on All the Latest Legal, Financial, and ComplianceInformation Needed to Analyze and Appraise Any BusinessFor over 25 years, Valuing a Business has provided professionals and students with expert business valuation information, offering clear, concise coverage of valuation principles and methods. Over the decades, the book's unsurpassed explanations of all valuation issues have made it the definitive text in the field, against which every other business valuation book is measured. Now updated with new legal, financial, and compliance material, the Fifth Edition of Valuing a Business presents detailed answers to virtually all valuation questions_ranging from executive compensation and lost profits analysis…to ESOP issues and valuation discounts. Written by Shannon Pratt, one of the world's leading authorities on business valuation, this updated classic offers a complete “one-stop” compendium of information on the full range of valuation concepts and methods. Valuing a Business contains step-by-step discussions and analyses of:Business Valuation Standards and CredentialsDefining the AssignmentBusiness Valuation Theory and PrinciplesGathering Company DataSite Visits and InterviewsResearching Economic and Industry InformationAnalyzing Financial StatementsFinancial Statement Ratio AnalysisIncome, Market, and Asset-Based Approaches to ValuationThe Capitalized Excess Earnings MethodPremiums and DiscountsWriting and Reviewing Business Valuation ReportsValuing Debt Securities, Preferred Stock, Stock Options, and S Corporation StockValuations for Estate and Gift Tax PurposesBuy-Sell AgreementsValuations for Income Tax PurposesValuation with Employee Stock Ownership PlansValuations for Ad Valorem TaxationDissenting Stockholder and Minority Oppression ActionsValuations for Marital Dissolution PurposesLitigation Support ServicesExpert TestimonyArbitration and Mediation This landmark reference also presents a wealth of recent court cases for each valuation area, which together provide a comprehensive overview of all the legal rulings and trends in the field of business valuation.

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Inhalt

Intro
Contents
Part I: State of the Profession, the Engagement, and the Basic Theory
1. Business Valuation Standards and Credentials
Growing Consensus on Business Valuation Standards
The Appraisal Foundation
Uniform Standards of Professional Appraisal Practice
Standards Published by Business Valuation Professional Organizations
Other Organizations That Have Offered Guidance on Business Valuation Issues
Recognition of Professional Standards by Courts
International Acceptance of U.S. Standards and Practices
Professional Organizations Offering Accreditation in Business Valuation
Summary
Bibliography
2. Defining the Assignment
Basic Elements of the Valuation Assignment
Definition of Who Offered and Who Accepted the Assignment
Description of the Legal Interest or Interests to Be Appraised
Description of the Specific Ownership Interest Characteristics
Valuation Date
Purpose of the Appraisal
Standards of Value
Going-Concern versus Liquidation Premise of Value
Sources of Guidance as to Applicable Standards and Premises of Value
Form of the Work Product
Scheduling
Fee Arrangements
Summary
3. Business Valuation Theory and Principles
Generally Accepted Theory
Reliance on Projected versus Historical Benefits
Basic Variables Affecting Value
Impact of Risk on Value
Accepted Business Valuation Approaches and Methods
Impact of Controlling versus Noncontrolling Ownership Interest
Impact of Marketability
Distinction between Discount for Lack of Control and Discount for Lack of Marketability
Other Qualitative Factors Affecting Value
Matching the Valuation Methodology with the Standard and Premises of Value
Sum of Parts Not Necessarily Equal to Whole
Summary of Business Valuation Principles
Bibliography
Part II: Gathering and Analyzing Data
4. Gathering Company Data
Generalized Company Information Checklist
Financial Statements
Federal Tax Returns
Interim Statements
Other Financial Schedules
Off-Balance Sheet Assets or Liabilities
Related Party Transaction Information
Operating Information
List of Past Transactions in the Stock or Offers to Buy
Budgets and Forecasts
Capital Requirements
Company Documents Relating to the Rights of Owners
Summary
5. Site Visits and Interviews
History
Description of the Business
Management and Management Compensation
Operations
Markets and Marketing
Finance
Prior Arm's-Length Transactions or Offers
Catch-All Question
Interviews of Outsiders
Summary
6. Researching Economic and Industry Information
National Economic Information
Regional Economic Information
Industry Information
Online Information
Indexes to Economic and Industry Information
Summary
Bibliography
7. Analyzing Financial Statements
Normalizing versus Controlling Adjustments
Adequacy of Allowance and Reserve Accounts
Inventory Accounting Methods
Depreciation Methods and Schedules
Depletion
Treatment of Intangibles
Other Intangible Assets
Capitalization versus Expensing of Various Costs
Timing of Recognition of Revenues and Expenses
Net Operating Loss Carryforwards
Treatment of Interests in Affiliates
Extraordinary or Nonrecurring Items
Operating versus Nonoperating Items
Management Compensation and Perquisites
Transactions Involving Company Insiders
Contingent Assets and Liabilities
Adjustments to Asset Valuations
Computation of Earnings per Share
Computation of Book Value per Share
An Example of the Effect of Alternative Accounting Methods
Adjusting the Balance Sheet to Current Values
Summary
Bibliography
8. Financial Statement Ratio Analysis
Use and Interpretation of Ratio Analysis
Common-Size Statements
Short-Term Liquidity Measures
Activity Ratios
Risk Analysis
Balance Sheet Leverage Ratios
Income Statement Coverage Ratios
Income Statement Profitability Ratios
Return on Investment Ratios
Asset Utilization Ratios
Summary
Part III: Business Valuation Approaches and Methods
9. Income Approach: Discounted Future Economic Income Method
Introduction: Theoretical and Practical Soundness of the Approach
The Basic Discounted Economic Income Framework
Estimating the Discount Rate
The Capital Asset Pricing Model
The Size Premium
The Build-Up Model
The Discounted Cash Flow or the Implied Method of Estimating the Cost of Capital
Arbitrage Pricing Theory
Sources of Data to Estimate the Cost of Equity Capital
Discounting Economic Income Available to Overall Capital
Specific Projection Period plus a Terminal Value
The "Midyear Discounting Convention
Example of Application of Discounted Economic Income Methods
Caveats in Using Discounted Economic Income Methods
Converting a Discount Rate Applicable to Net Cash Flow to a Discount Rate Applicable to Net Income
Does the Discounted Economic Income Model Produce a Control or a Minority Value?
What Standard of Value Does a Discounted Economic Income Model Produce?
Common Errors
Summary
Bibliography
10. Income Approach: Capitalized Economic Income Method
Essential Difference between the Discounting Model and the Capitalization Model
The Perpetual Economic Income Stream Model
Converting a Discount Rate to a Capitalization Rate-The Constant Growth Model
The Gordon Growth Model
Sensitivity to Growth Rate Assumptions
When to Use the Discounting versus the Capitalization Method
Equivalence of the Discounting and Capitalization Methods
Implementing the Capitalized Economic Income Method
Projecting the Basic Economic Income Level and the Growth Rate
Defining the Components in the Capitalization Method
Modification of the Capitalized Economic Income Method to Reflect the Midyear Discounting Convention
Using the Capitalized Economic Income Method to Develop a Terminal Value for the Discounted Economic Income Method
Does the Capitalized Economic Income Method Produce a Control Value or a Minority Value?
What Standard of Value Does the Capitalized Economic Income Model Produce?
Relationship between the Capitalized Economic Income Method and the Market Approach
Summary
Bibliography
11. Market Approach: Guideline Publicly Traded Company Method
Overview of the Guideline Publicly Traded Company Method
When Is the Guideline Publicly Traded Company Method Most Useful?
Criteria for Guideline Company Selection
How Many Guideline Companies?
Time Period to Consider
Deciding Which Valuation Multiples to Use
Compiling Guideline Company Tables
Selecting and Weighting Multiples for the Subject Company Based on Guideline Companies
Treating Nonoperating Assets, Excess Assets, and Asset Deficiencies
Multiline Companies
Typical Adjustments to Reach a Value Conclusion
Valuation Multiples Using Market Value of Invested Capital
Common Errors
Summary
Bibliography
12. Market Approach: Guideline Merged and Acquired Company Method
Overview of the Merged and Acquired Company Method
When Is the Guideline Merged and Acquired Company Method Most Useful?
Control Transaction (Acquisition) Valuation Multiples
Caveat: Check the Deal Structure
Sources of Merger and Acquisition Data
Past Subject Company Transactions
Formulas or Rules of Thumb
Nonoperating Assets, Excess Assets, and Asset Deficiencies
Selecting and Weighting Multiples for the Subject Company Based on Guideline Transactions
Reaching the Value Conclusion
Summary
Bibliography
13. The Capitalized Excess Earnings Method
The History of the Capitalized Excess Earnings Method
The Capitalized Excess Earnings Valuation Method
Analysis of the Capitalized Excess Earnings Method
Comprehensive Example
The Treatment of Negative Goodwill
Common Errors in Applying the Capitalized Excess Earnings Method
Summary
Bibliography
14. Asset-Based Approach: Asset Accumulation Method
Fundamentals of the Asset Accumulation Method
Asset-Based Approach versus Book Value
Asset Accumulation Method and Capitalized Excess Earnings Method
Asset Accumulation Method Procedures
Individual Asset Valuation Procedures
Example
Advantages of the Asset Accumulation Method
Disadvantages of the Asset Accumulation Method
Summary
Bibliography
Part IV: Discounts, Premiums, and the Value Conclusion
15. Control and Acquisition Premiums
Levels of Value
Elements of Control
Control or Lack of Control Covers a Spectrum
How the Standard of Value Affects the Control Premium
Market Evidence Regarding Control and Acquisition Premiums
Summary
Bibliography
16. Discount for Lack of Control
Lack of Control Covers a Spectrum
Factors That Influence the Lack of Control Discount
Empirical Evidence to Quantify Lack of Control Discounts
Discounts from Net Asset Value
Procedures for the Valuation of Noncontrolling Ownership Interests
Adjustments to Income Statement
Summary
Bibliography
17. Discounts for Illiquidity and Lack of Marketability
Concept and Importance of Marketability
Marketability Discounts Extracted from Prices of Restricted Stocks
Studies of Private Transactions before Initial Public Offerings
Other Analysis of Discounts for Lack of Marketability for Minority Ownership Interests
Discounts for Lack of Marketability for Controlling Ownership Interests
Factors That Affect the Discounts for Illiquidity and Lack of Marketability
Court Decisions on Discounts for Illiquidity and Lack of Marketability
Summary
Bibliography
18. Other Valuation Discounts
Entity Level Discounts
Other Shareholder Level Discounts
Summary
Bibliography
19. Valuation Synthesis and Conclusion
The Reconciliation Process
Criteria for the Selection of Valuation Approaches and Methods
Reconciling Divergent Indications among Valuation Methods
Weighting of Valuation Method Results
At What Point Are Valuation Discounts and Premiums Applied?
Concluding the Value Estimate
Summary
Part V: Writing and Reviewing Business Valuation Reports
20. Writing the Business Valuation Report
Overview of the Business Valuation Report
USPAP Reporting Standards
USPAP Ethics Provisions
Valuation Industry Reporting Standards
Guidelines for Effective Report Writing
Summary
Bibliography
21. Sample Report
Introduction
Analysis of the U.S. Economy
Analysis of the Poultry Processing Industry
Identification of Guideline Companies
Financial Statement Analysis
Income Statements
Valuation of Common Stock
Overall Valuation Conclusion
22. Reviewing a Business Valuation Report
Identification of the Subject Property
Relevant Dates
Definition of Value
Purpose of the Valuation
Actual or Assumed Ownership Characteristics
Basic Company Information
Economic and Industry Outlook
Sources of Information
Financial Statement Analysis
Valuation Methodology
Are the Data Used Appropriate for the Valuation Date?
Valuation Synthesis and Conclusion
Analyst's Qualifications
Appraisal Certification
Statement of Contingent and Limiting Conditions
Overall Evaluation
Part VI: Valuing Specific Securities and Interests
23. Valuing Debt Securities
Common Situations Requiring Valuation of Debt Securities
Lease Financing
Method of Valuation
Marketability Aspects of Closely Held Debt Securities
Special Characteristics of Various Debt Securities
Summary
Bibliography
24. Valuing Preferred Stock
Common Situations Requiring Valuation of Preferred Stock
Special Characteristics of Closely Held Preferred Stocks
Method of Valuation
Marketability Aspects of Closely Held Preferred Stock
Revenue Ruling 83-120
Summary
Bibliography
25. Introduction to Valuing Stock Options
Common Situations Requiring Valuation of Options
Terminology
The Basic Call Option Equation
The Black-Scholes Option Model
The Binomial Model for American Call Options
Methodology
Employee Incentive Stock Options
Using Option Pricing to Value the Built-in Gains (BiG) Tax Liability
Real Options
Summary
Bibliography
26. Valuing S Corporation Stock and Interests in Other Pass-Through Entities
Case Law History
Empirical Research on Sales of Controlling Interests
Models for Valuation of S Corporation Minority Interests
Summary
Bibliography
Part VII: Valuations for Specific Purposes
27. Valuations for Gift and Estate Tax Purposes
Introduction
Current Tax Rates and Penalties
Appraiser Penalty and Potential for Blacklisting
Guidelines for Federal Gift and Estate Tax Valuations
Chapter 14 Special Valuation Guidelines
Locking in the Three-Year Gift Tax Statute of Limitations
Shifting the Burden of Proof from the Taxpayer to the IRS
Valuation Issues in Estate and Gift Tax Planning
Summary
Bibliography
28. Estate and Gift Tax Court Cases
Standard of Value
Approaches to Value
Burden of Proof
Selection of Guideline Companies
Buy-Sell Agreements
Covenants Not to Compete
Reliance on Subsequent Sales
Subsequent Events and Data
Discount for Lack of Marketability (DLOM)
Discounts for Lack of Marketability-Controlling Ownership Interests
Discount for Lack of Control (DLOC)
Blockage Discounts
Key Person Discount
Contingent Liability Discounts
Combined Discounts
Premiums
Trapped-In Capital Gains Taxes
S Corporations
Family Limited Partnerships
Focus on Willing Seller as Well as on Willing Buyer
Inadequacy of the Valuation
Must Use Empirical Data to Quantify Variables
Sufficiency of Data
Summary
References
29. Buy-Sell Agreements
Types of Buy-Sell Agreements
Valuation Provisions of the Buy-Sell Agreement
Terms and Funding
Restrictions on Transfer
Buy-Sell Agreement Values for Estate and Gift Tax Valuation under Chapter 14
Valuation Requirements under Section 2703
Bibliography
30. Valuation for Income Tax Purposes
Introduction
Federal Income Tax Reasons to Conduct an Appraisal
Valuation of Property Received in a Transaction
Valuation Requirements for Charitable Contribution Deductions
Valuation of Compensation
Valuation of Worthless and Abandoned Property
Valuation Aspects of Cancellation of Indebtedness Income
Valuation-Related Income Tax Penalties
Valuation Aspects of Intercompany Transfer Pricing
Valuation of Intellectual Properties for State Income Taxation Purposes
Summary
Bibliography
31. Income Tax Court Cases
Introduction
General Valuation Methodology Issues
Charitable Contribution Issues
Reasonable Compensation Issues
Intangible Asset Valuation Issues
Other Income Tax Issues
Summary
32. Valuations for Employee Stock Ownership Plans
General ESOP Framework
Types of ESOPs
Valuation of a Company for ESOP Purposes
Adequate Consideration
Independence of the Appraiser and the Appraiser's Role
Reporting Requirements
Valuation Approaches and Methods
ESOP-Specific Adjustments
Control Premiums
Discount for Lack of Marketability
Posttransaction Value in Leveraged ESOPs
Legislative and Regulatory Issues in ESOPs
The IRS Audit Guidelines
ESOP Specific Plan Administration Issues
Finance Issues in Leveraged ESOPs
Repurchase Liability
Fiduciary Issues in ESOPs
Voting Issues
Independent, Directed, or Internal Trustee
Accounting for ESOPs
Nuances of S Corporation ESOPs
Steps to Implementing an ESOP
Summary
Bibliography
33. ESOP Court Cases
Introduction
Sommers Drug Stores
U.S. News & World Report
Andrade v. Parsons
Reich v. Valley National Bank of Arizona
Howard v. Shay
Eyler v. Commissioner
Davis v. Torvick
Henry v. Champlain Enterprises
Eckelkamp v. Beste
Horn v. McQueen
Chao v. Hall Holding Co., Inc.
Keach v. U.S. Trust Co.
Armstrong v. LaSalle Bank National Ass'n
Kennedy v. Trustmark National Bank
Summary
34. Valuations for Ad Valorem Taxation
Introduction
Definitions of Ad Valorem Taxation Terminology
Market Value as the General Basis of Property Assessment
The Property Tax Valuation Process
The Property Tax Equalization Process
The Property Tax Unitary Valuation Process
The Property Tax Appeal Process
Special Topics
Problems with the Use of Stock Market Data in Property Tax Valuations
Capitalization of Leased Equipment Rental Expense
Summary
Bibliography
35. Dissenting Stockholder and Minority Oppression Actions
Dissenting Stockholder Actions
Interpretation of the Fair Value Standard in Dissent Cases
Requirement for Entire Fairness
Consequences of Lack of Entire Fairness
Minority Interest Dissolution Actions
Interpretation of the Fair Value Standard in Dissolution Cases
Summary
Bibliography
36. Dissenting Stockholder and Minority Oppression Court Cases
Readers Must Interpret Cases Carefully
Fair Value Is Not Fair Market Value
Premise of Value
Breach of Fiduciary Duty Expands Plaintiffs' Potential Damages
Approaches to Value
Weighting of Methods
Discounts and Premiums
Dr. Pangloss and Mr. Scrooge
Summary
37. Valuations for Marital Dissolution Purposes
The Marital Estate
Standard of Value
Valuation Date
Discovery
Goodwill
Valuation Methods
Compensation
Noncompete Covenants
Buy-Sell Agreements
Treatment of Trapped-In Capital Gains Taxes
Valuation Discounts and Premiums
The Role of the Analyst
Jointly Retained" Assignments
Adequacy of Evidence
Summary
Bibliography
38. Marital Dissolution Court Cases
Standards of Value
Premise of Value
Active versus Passive Appreciation
Valuation Date
Goodwill
The "Double Dipping" Issue
Valuation Methods in the Family Law Courts
Noncompete Covenants
Buy-Sell Agreements
Discounts for Lack of Control and Lack of Marketability
Adequacy of Evidence
Treatment of Tax Liabilities
Summary
39. Fair Value for Financial Reporting
Definition of Fair Value
Differences from Fair Market Value
Disclosures
Part VIII: Litigation and Dispute Resolution
40. Litigation Support Services
Valuation-Related Controversy Matters
Types of Litigation
Engaging the Appraiser
Discovery
Assessing the Case
Business Appraisal Discovery
Calculating the Amount of Damages
Work Product
Critique of the Opposition
Expert Testimony
Rebuttal
Assistance in Preparing Briefs
Summary
41. Expert Testimony
Background Preparation
Challenges to Testimony per Daubert/Kumho
Depositions
Outlining Courtroom Testimony
Exhibits
Preparation with the Attorney
In the Courtroom
Courts' Expectations Regarding Expert Testimony
Summary
Bibliography
42. Arbitration and Mediation
Advantages of ADR over Court Trial
Situations Suitable for Arbitration
The Arbitration Agreement
Selection of Arbitrators
Engagement and Compensation of Arbitrators
The Arbitration Process
Reporting the Results of the Arbitration
Mediation
Summary
Bibliography
Professional Arbitration and Mediation Organizations
Appendix A: International Glossary of Business Valuation Terms
A
B
C
D
E
F
G
H
I
K
L
M
N
O
P
R
S
T
U
V
W
Index
A
B
C
D
E
F
G
H
I
J
K
L
M
N
O
P
Q
R
S
T
U
V
W
Y
Z

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