Discounted cash flow method, or DCF for short, is well known in business valuation. You forecast business earnings, assess business risk in the form of discount rate and calculate business value in present day dollars. But you could also use the DCF method as a great way to calculate your discount rate. To do so,… Continue Reading
Now you must think someone is joking, right? Surely, there is no such thing in business as excess earnings. As the saying goes, the more the better. Don’t get confused though – in business valuation, as in many financial analysis areas, technical definitions make all the difference. Excess earnings – more than a pretty name… Continue Reading
Valuing a business by discounting its cash flows? Guess what’s lurking in the discount rate. Yep, the renowned equity risk premium. Better yet, business appraisers like to drop a formal name for this number – the implied equity risk premium. What is going on? Can you spot the equity risk premium in the discount rate… Continue Reading
Pick up a text book on corporate finance and you will run right into the discounted cash flow valuation method. It is so important that it usually deserves a chapter on its own. Students sweat it, professors hammer in the fundamentals, professionals remember the bruising experience studying the DCF method for years afterwards. Lurking in… Continue Reading
Are you are valuing businesses internationally? Then consider complying with the International Valuation Standards or IVS for short. These standards cover valuation of all types of assets world-wide. For example, businesses, real property, personal business property, market securities and more. In the United States, the USPAP set of standards has long governed appraisals across the… Continue Reading
You heard the old adage, ‘time and tide wait for no man’. None more apt than in business appraisal. You don’t have to go back a ways to see why. Remember the heady days of the Great Recession? Businesses were trembling in anticipation, markets creaked at the seams, and politicians spouted their usual platitudes and… Continue Reading
In the complex world of business valuation keeping things simple may seem a distant dream. Just think about the challenges faced in valuing a company. For instance, analysis of economic conditions, forecasting business earnings, assessing risk, choosing the right valuation methods. And interpreting results that may puzzle the unwary. With so many moving parts, it’s… Continue Reading
Putting the business on the market? Valuing the business to set the right asking price or make an acceptable offer is half the battle. Stray but a little and the deal will likely go south. You have a choice of three approaches to business valuation, namely the asset, income, and market. And of these three… Continue Reading
In the context of business valuation, professional business appraisers call it excess earnings. Do not confuse it with the notion of business people making more than they should. Excess earnings is a technical term and it plays a central role when valuing a business under the asset approach. This valuation method is formally known as… Continue Reading
Surprised? Then consider a typical situation calling for a business valuation – a company put up for sale. Business owners are proud to discuss the past track record of the business and especially how much money they were able to make. Business value is in your dreams Investors and buyers look at the company from… Continue Reading
Whenever the subject of business valuation comes up, the notion of valuation multiples is sure to follow. Business people and professional appraisers are quick to point out their favorite valuation multiples for a ballpark estimate of business value. Business sale comps – market barometer of value What is behind the popularity of these valuation tools?… Continue Reading
This may be obvious to the professional appraiser, but many business people often wonder – why are business earnings forecasts such an essential part of business valuation? Shouldn’t a business be valued on its historic financial performance record? Why do a business valuation? Think about a typical situation in which a business needs to be… Continue Reading
If you are valuing a business using the income based methods, creating a viable earnings forecast is essential. Your business valuation result depends on your ability to accurately predict the income stream and assess business risk going forward, not an easy task. What do you value – Business highfliers or cash cows? No one has… Continue Reading
This group of business assets is of increasing importance to business value creation. Here is the short list: Trademarks and service marks Non-compete agreements Website domain names Trade marks and service marks are generally protected intellectual property. Businesses often seek their registration, such as the Federal trademarks issued by the US Patents and Trademarks office… Continue Reading
Business valuation is a constant challenge for the business people and professionals alike. While many security analysts do not have the accounting background, they often engage in valuing companies. Professionally managed firms, especially public companies, must adhere to the consistent financial accounting and reporting rules such as the GAAP mandated in the US by the… Continue Reading