Book description
Real world applications and professional consensus by nationally recognized valuation experts
Filled with a wealth of detail, practice tips, and examples, Financial Valuation: Applications and Models, Third Edition brings together thirty nationally recognized names in the valuation industry hailing from a variety of professional specializations-including accounting, business appraisal, and financial analysis-to provide practitioners with an indispensable reference on various valuation issues. Assembled by valuation authority James Hitchner, these contributors analyze, explain, and collaborate on the most effective valuation procedures to share real-world applications in the field of financial valuations.
Written by 30 top experts in business valuations field
Provides the valuation theory, the consensus view on application, and then the tools to apply it
An all-encompassing valuation handbook that presents the application of financial valuation theory for business appraisers and consultants
New chapters on Assessing Risk and Expert Witness Testimony
Expands chapter on Cost of Capital
Comprehensive in coverage and authoritative in treatment, James Hitchner's Financial Valuation, Third Edition provides trusted, complete business valuation information for CPAs, appraisers, analysts, attorneys, and corporate executives.
Table of contents
- Cover
- Wiley Finance Series
- Title Page
- Copyright
- Dedication
- About the Editor
- About the Authors
- Acknowledgments
-
Chapter 1: Introduction to Financial Valuation
- WHO VALUES BUSINESSES?
- PURPOSE OF A VALUATION
- PROFESSIONAL VALUATION ORGANIZATIONS
- STANDARDS OF VALUE
- FAIR MARKET VALUE
- INVESTMENT VALUE
- INTRINSIC VALUE
- FAIR VALUE (STATE RIGHTS)
- FAIR VALUE (FINANCIAL REPORTING)
- PREMISE OF VALUE
- PRINCIPLES OF APPRAISAL PRACTICE
- DATES
- APPROACHES TO VALUE
- VALUATION PROCEDURES
- SUMMARY
- ADDENDUM 1—VALUATION CHECKLIST/READY REFERENCE (REVENUE RULING 59–60)
- ADDENDUM 2—INTERNATIONAL GLOSSARY OF BUSINESS VALUATION TERMS
-
Chapter 2: Standards of Value
- INTRODUCTION
- HOW STANDARD OF VALUE CAN AFFECT THE FINAL “NUMBER”
- PREMISES OF VALUE
- COMMON STANDARDS OF VALUE
- COMMON OPERATIONAL PREMISES UNDERLYING THE STANDARD OF VALUE
- APPLICATION OF SPECIFIC STANDARDS OF VALUE
- FAIR VALUE IN SHAREHOLDER DISSENT AND OPPRESSION
- CONTROL PREMIUMS
- IMMEDIATELY BEFORE
- UNLESS EXCLUSION WOULD BE INEQUITABLE
- EXTRAORDINARY CIRCUMSTANCES
- CURRENT AND CUSTOMARY TECHNIQUES
- STANDARD OF VALUE IN DIVORCE
- FAIR VALUE IN FINANCIAL ACCOUNTING
- MEASUREMENT
- CONCLUSION
-
Chapter 3: Research and Its Presentation
- OBTAINING INTERNAL INFORMATION
- A DIRECTIVE FROM THE INTERNAL REVENUE SERVICE
- RESEARCH TECHNIQUES AND PLANNING THE SEARCH
- INFORMATION SOURCES: BUSINESS FINANCIAL DATABASES
- ECONOMIC RESEARCH
- SELECTED SOURCES OF ECONOMIC INFORMATION
- INDUSTRY RESEARCH
- SELECTED SOURCES OF INDUSTRY INFORMATION
- GUIDELINE COMPANY AND TRANSACTION RESEARCH
- SOURCES FOR PUBLICLY TRADED COMPANY DATA
- Guideline Transaction Databases
- PRESENTING RESEARCH IN A REPORT
- other sources of information
- SUMMARY
- ADDENDUM 1—VALUATION INFORMATION REQUEST (VIR) GENERAL
- ADDENDUM 2—MANAGEMENT INTERVIEW–OPERATIONS
- ADDENDUM 3—MANAGEMENT INTERVIEW–FINANCIAL REVIEW
- ADDENDUM 4—INDUSTRY RESEARCH FORM
-
Chapter 4: Financial Statement and Company Risk Analysis
- HISTORICAL FINANCIAL STATEMENT ANALYSIS
- LENGTH OF FINANCIAL HISTORY TO BE USED
- SPREADING FINANCIAL STATEMENTS IN COLUMNAR FORMAT
- ADJUSTMENTS TO FINANCIAL STATEMENTS
- NORMALIZATION OF HISTORICAL FINANCIAL STATEMENTS
- UNUSUAL, NONRECURRING, AND EXTRAORDINARY ITEMS
- NONOPERATING ITEMS
- CHANGES IN ACCOUNTING PRINCIPLE
- NONCONFORMANCE WITH GAAP
- TAX AFFECTING THE EARNINGS OF SUBCHAPTERS CORPORATIONS and other adjustments
- DEGREE OF OWNERSHIP INTEREST
- NORMALIZATION ADJUSTMENTS
- COMMON SIZING NORMALIZED FINANCIAL STATEMENTS
- RATIO ANALYSIS (QUANTITATIVE ANALYSIS)
- COMPARATIVE ANALYSIS
- RISK ANALYSIS (QUALITATIVE ANALYSIS)
- Macroenvironmental Analysis
- ADDENDUM 1—COMMONLY USED FINANCIAL RATIOS: APPLICATION TO ALE’S DISTRIBUTING
-
Chapter 5: Income Approach
- FUNDAMENTAL THEORY
- BASICS OF INCOME APPROACH—“A FRACTION”
- INCOME APPROACH METHODOLOGIES
- NORMALIZATION PROCESS
- ADJUSTMENTS FOR OWNERSHIP CHARACTERISTICS
- ADJUSTMENTS FOR GAAP DEPARTURES AND EXTRAORDINARY, NONRECURRING, AND/OR UNUSUAL ITEMS
- ADJUSTMENTS FOR NONOPERATING ASSETS AND LIABILITIES AND RELATED INCOME AND EXPENSES
- ADJUSTMENTS FOR TAXES
- ADJUSTMENTS FOR SYNERGIES FROM MERGERS AND ACQUISITIONS
- DETERMINATION OF FUTURE BENEFIT STREAM (CASH FLOWS)
- DEFINING THE BENEFIT STREAM
- NET CASH FLOW
- DEFINING NET CASH FLOW
- USE OF HISTORICAL INFORMATION
- THE CAPITALIZED CASH FLOW METHOD
- THE DISCOUNTED CASH FLOW METHOD
- DCF MODEL
- TERMINAL VALUE
- CAPITALIZED CASH FLOW METHOD (revisited)
- EXCESS CASH FLOW METHOD
- CONCLUSION
- ADDENDUM 1—APPLICATION OF THE DIRECT EQUITY METHOD (DEM) AND THE INVESTED CAPITAL METHOD (ICM)
- ADDENDUM 2—DEALING WITH DEBT
-
Chapter 6: Cost of Capital/Rates of Return
- THREE VARIABLES
- CHARACTERISTICS OF COST OF CAPITAL
- INVESTOR EXPECTATIONS AS QUANTIFIED BY THE COST OF CAPITAL
- COST OF CAPITAL EQUALS DISCOUNT RATE
- COST-OF-CAPITAL METHODS
- MORE ON THE BASIC CONCEPTS
- DISCOUNT RATE, CAPITALIZATION RATE, AND ANTICIPATED GROWTH
- GROWTH
- RELATIONSHIP BETWEEN RISK AND COST OF CAPITAL
- TYPES OF RISK—ANOTHER VIEW
- RISKS IN A SMALL BUSINESS
- METHODS FOR DEVELOPING COST OF CAPITAL
- SIZE PREMIUMS
- METHODS TO ARTICULATE UNSYSTEMATIC RISK
- OTHER ISSUES
- CAPITAL ASSET PRICING MODEL METHOD
- DEVELOPMENT OF THE WEIGHTED AVERAGE COST OF CAPITAL
- PRICE/EARNINGS METHOD
- ADJUSTMENTS TO THE PRICE/EARNINGS RATIO
- ARBITRAGE PRICING THEORY
- RISK RATE COMPONENT MODEL FKA BUILD-UP SUMMATION MODEL
- COST-OF-CAPITAL ISSUES RELATED TO USE OF THE EXCESS CASH FLOW METHOD
- ADDENDUM 1—COST OF CAPITAL CONTROVERSIES: IT’S TIME TO LOOK BEHIND THE CURTAIN
-
Chapter 7: Market Approach
- TYPE OF VALUE OBTAINED
- ADVANTAGES AND DISADVANTAGES OF THE MARKET APPROACH
- CHOOSING GUIDELINE COMPANIES
- BASIC IMPLEMENTATION
- SOURCES AND CHARACTERISTICS OF GUIDELINE COMPANY DATA AND DMDM DATA
- INFORMATION SOURCES
- MORE INFORMATION ON TRANSACTION DATABASES
- ADVANTAGES AND DISADVANTAGES OF THE GUIDELINE COMPANY TRANSACTION METHOD
- PUBLICLY TRADED COMPANIES
- INFORMATION SOURCES FOR INDUSTRY “COMPS”
- STOCK PRICES AND NUMBERS OF SHARES OUTSTANDING
- ADVANTAGES/DISADVANTAGES OF PUBLIC COMPANY DATA
- CHARACTERISTICS OF PUBLICLY TRADED COMPANIES
- FINANCIAL AND OTHER INDICATORS
- SAMPLE SIZE MATTERS
- COMPARABLE COMPANIES’ INFORMATION DATES
- BASIC FINANCIAL INDICATORS
- DISPLAYING THE INFORMATION
- ADJUSTMENTS TO THE GUIDELINE AND SUBJECT COMPANIES
- INCOME ADJUSTMENTS
- BALANCE SHEET ADJUSTMENTS
- EFFECTS OF ADJUSTMENTS ON VALUE
- CONCLUDING REMARKS ON CHOOSING COMPARABLES
- CALCULATING STANDARD PRICING MULTIPLES
- EQUITY VERSUS INVESTED CAPITAL
- FINANCIAL STATEMENT MEASURES
- COMPUTATION OF MULTIPLES
- MATCHING PRICE TO PARAMETER
- DISPERSION OF PRICING MULTIPLES
- APPLYING THE VALUATION MULTIPLES
- CONCLUDING THOUGHTS ON VALUE
- USING THE PRICING MULTIPLES FOR GROWTH
- ADJUSTING THE GUIDELINE MULTIPLES FOR SIZE
- SUMMARY
-
Chapter 8: Asset Approach
- FUNDAMENTAL THEORY
- APPLICABILITY
- PREMISE OF VALUE
- CONTROL VERSUS MINORITY
- BUILT-IN GAINS
- GENERAL STEPS IN THE ASSET APPROACH
- VALUATION OF INDIVIDUAL ASSETS AND LIABILITIES EXAMPLE
- LIABILITIES
- UNRECORDED ASSETS AND LIABILITIES
- BUILT-IN GAIN
- CONCLUSION
- ADDENDUM 1A—BUILT-IN GAINS TAXES: BUSINESS VALUATION CONSIDERATIONS, PART I
- ADDENDUM 1B—BUILT-IN GAINS TAXES: BUSINESS VALUATION CONSIDERATIONS, PART II
- HOLDING COMPANIES ORGANIZED AS S CORPORATIONS
- ADDENDUM 2—UNDERSTANDING REAL ESTATE APPRAISALS
- DISTRESSED MARKETS
- GREEN BUILDINGS
- ADDENDUM 3—UNDERSTANDING MACHINERY AND EQUIPMENT APPRAISALS
- ADDENDUM 4—REVENUE PROCEDURE 77-12
-
Chapter 9: Valuation Discounts and Premiums
- LEVELS OF VALUE
- CLASSIFYING DISCOUNTS
- DISCOUNTS FOR LACK OF CONTROL AND CONTROL PREMIUMS
- DISCOUNTS FOR LACK OF MARKETABILITY
- EMPIRICAL EVIDENCE OF MARKETABILITY DISCOUNTS
- DETAILED STUDIES
- QUANTITATIVE TOOLS
- OTHER DISCOUNTS
- ANALYSIS OF PREMIUMS ACCORDED VOTING VERSUS NON-VOTING STOCK
- DISCOUNTS AND PREMIUMS SUMMARY
- Chapter 10: Report Writing
-
Chapter 11: Business Valuation Standards
- HISTORY OF VALUATION STANDARDS
- GOVERNMENT ACTION
- ORGANIZATION OF THE USPAP STANDARDS
- USPAP BUSINESS VALUATION STANDARDS (2010/2011)
- OTHER BUSINESS VALUATION STANDARDS AND CREDENTIALS
- SUMMARY
- ADDENDUM 1—STANDARDS: A SUMMARY OF THE AICPA’S NEW BV STANDARDS
- ADDENDUM 2—IRS BV GUIDELINES CHECKLIST, INTERNAL REVENUE SERVICE, ENGINEERING PROGRAM, BUSINESS VALUATION GUIDELINES 4.48.4
-
Chapter 12: Valuation of Pass-Through Entities
- INTRODUCTION
- STANDARD OF VALUE
- HISTORICAL BACKDROP
- CURRENT STATUS OF DEBATE
- CONTROLLING INTERESTS IN PASS-THROUGH ENTITIES
- CONTROLLING-INTEREST STUDIES
- SUMMARY: CONTROLLING INTERESTS IN PASS-THROUGH ENTITIES
- TAX RATES
- NONCONTROLLING INTERESTS IN PASS-THROUGH ENTITIES
- TREHARNE MODEL
- VAN VLEET MODEL
- MERCER MODEL
- THE QUANTITATIVE MARKETABILITY DISCOUNT MODEL
- GRABOWSKI MODEL
- SUMMARY: NON-CONTROLLING INTEREST IN PASS-THROUGH ENTITY THEORY
- ADDENDUM—A SUMMARY APPROACH TO PTE VALUATION
- Chapter 13: Estate, Gift, and Income Tax Valuations
-
Chapter 14: Valuation of Family Limited Partnerships
- FAMILY LIMITED PARTNERSHIP USES
- TAX ADVANTAGES
- HOW FAMILY LIMITED PARTNERSHIPS ARE FORMED
- OTHER CHARACTERISTICS OF FAMILY LIMITED PARTNERSHIPS
- STATE LAW, PROPERTY RIGHTS, AND THEIR IMPORTANCE TO THE VALUATION PROCESS
- IMPROPER FORMATION CAN CREATE PROBLEMS FOR PARTNERS
- VALUATION OF FAMILY LIMITED PARTNERSHIP INTERESTS
- NEW DEVELOPMENTS IN CHAPTER 14
- TIERED DISCOUNTS
- ILLUSTRATIVE CASE STUDY
- Chapter 15: Summary of Tax Court Cases Issues
- Chapter 16: Shareholder Disputes
-
Chapter 17: Employee Stock Ownership Plans
- INTRODUCTION TO EMPLOYEE STOCK OWNERSHIP PLANS
- NEED FOR VALUATION SERVICES
- FEASIBILITY OF AN ESOP
- HOW ESOPS ARE USED
- SECURITY LAWS AND THE ESOP
- TAX ADVANTAGES OF ESOPs
- DIFFERENCES IN ENTITY STRUCTURE
- IMPORTANT DIFFERENCES IN SHARE OWNERSHIP (ESOP VERSUS OTHER)
- ADEQUATE CONSIDERATION: HOW AND WHY IT WORKS
- ESOPs AND PLAN CONTRIBUTIONS
- GENERAL CONSIDERATIONS FOR ESOP LOANS
- ESOPs THAT INCLUDE DEBT
- ACCOUNTING STANDARDS AND ESOPs WITH DEBT
- SECTION 415 LIMITS
- CRITERIA FOR VALUING ESOP SHARES
- END-OF-YEAR AND MID-YEAR CONVENTIONS
- Considerations in the Calculation of the Terminal Value
- ADJUSTMENTS FOR LACK OF MARKETABILITY
- ADJUSTMENTS FOR CONTROL OR LACK OF CONTROL—MINORITY INTEREST
- VOTING AND OTHER RIGHTS OF THE ESOP SHAREHOLDERS
- REPURCHASE REQUIREMENT, THE PUT RIGHT—WHAT AND HOW TO DEAL WITH IT?
- PENALTIES FOR AN IMPROPER VALUATION
- VALUATION CONCLUSION: WRITING A CONCLUSION
- ADDITIONAL INFORMATION
- INFORMATION SOURCES
-
Chapter 18: Valuation in the Divorce Setting
- STANDARDS OF VALUE IN DIVORCE
- PREMISE OF VALUE—GOING CONCERN
- PREMISE OF VALUE—LIQUIDATION
- GOODWILL—THE BATTLEGROUND FOR DIVORCE VALUATIONS
- DEFINING GOODWILL
- STATE INTERPRETATIONS ON INCLUDING GOODWILL IN THE MARITAL ESTATE
- PERSONAL VERSUS ENTITY (enterprise) GOODWILL
- DIVIDING GOODWILL INTO PERSONAL AND ENTITY COMPONENTS
- APPLYING THE FACTORS TO SEPARATE GOODWILL
- ROLE OF NONCOMPETE AGREEMENTS IN DETERMINING PERSONAL VERSUS ENTITY GOODWILL
- PERSONAL GOODWILL IN COMMERCIAL BUSINESSES
- VALUATION OF THE S CORPORATION AND OTHER PASS-THROUGH ENTITIES IN DIVORCE VALUATIONS
- RESTRICTIONS ON DATA
- RANGE VERSUS SPECIFICITY
- PROFESSIONAL STANDARDS IN A DIVORCE SETTLEMENT
- ROLE OF standards
- STATEMENT ON STANDARDS FOR VALUATION SERVICES NO. 1 (AICPA)
- OTHER STANDARDS
- DAUBERT CHALLENGES IN DIVORCE
- VALUATION METHODOLOGY AND THE APPLICATION OF DISCOUNTS IN DIVORCE VALUATIONS
- AVOID DOUBLE COUNTING
- WHEN AN INTEREST is CONSIDERED CONTROL IN A DIVORCE SETTING
- FAMILY AGGREGATIONS IN DIVORCE SETTINGS
- PARTNERSHIPS, LLCs, LLPs, AND FAMILY ENTITIES IN A DIVORCE SETTING
- LIQUIDITY MYTH IN PASS-THROUGH ENTITIES
- DIVORCE VALUATION AND BANKRUPTCY
- SUMMARY
- Chapter 19: Valuation Issues in Small Businesses
-
Chapter 20: Valuation Issues in Professional Practices
- TYPES OF PRACTICES
- PURPOSE OF VALUATION
- PROFESSIONAL GOODWILL AND PRACTICE GOODWILL
- SELECT CASE LAW FOR MARITAL DISSOLUTION
- FACTORS AFFECTING VALUE
- FINANCIAL STATEMENT ADJUSTMENTS
- VALUATION METHODS
- SUMMARY
- ADDENDUM 1—Management Interview Medical Practice (Sample)
- ADDENDUM 2—Management Interview Law Practice (Sample)
- ADDENDUM 3—Management Interview Accounting Practice (Sample)
-
Chapter 21: Valuation of Intangible Assets
- INTRODUCTION
- WHAT ARE INTANGIBLE ASSETS?
- WHY INTANGIBLE ASSETS ARE DIFFICULT TO MEASURE
- THE NATURE OF INTANGIBLE ASSETS
- IDENTIFICATION AND CLASSIFICATION OF INTANGIBLE ASSETS
- MEASUREMENT OF INTANGIBLE ASSETS
- BUSINESS COMBINATIONS
- THE ACQUISITION METHOD
- INTANGIBLE ASSET VALUATION ISSUES
- NATURE OF GOODWILL
- FINANCIAL REPORTING DISCLOSURES—SELECTED DISCLOSURE REQUIREMENTS
- CASE STUDY: DETERMINING THE VALUE OF GOODWILL AND OTHER INTANGIBLE ASSETS IN A BUSINESS COMBINATION
- ADDENDUM 1—FAIR VALUE
- ADDENDUM 2—Intellectual Property
- Chapter 22: Marketing, Managing, and Making Money in a Valuation Services Group
-
Chapter 23: Business Damages
- ROLE OF THE LAW AND FINANCIAL EXPERTS
- LEGAL PRINCIPLES GOVERNING DAMAGES
- EXCLUSIONS BASED ON INSUFFICIENT FACTS AND DATA—FAILURE TO PROVIDE INDEPENDENT ANALYSIS
- ADMISSIBILITY OF EXPERT OPINIONS
- MEASURE OF DAMAGES: DIMINUTION OF VALUE OR LOST PROFITS
- DIFFERENCES BETWEEN DAMAGE COMPUTATIONS AND BUSINESS VALUATIONS
- CAN BUSINESS DAMAGES EXCEED THE FAIR MARKET VALUE OF THE BUSINESS?
- CONCLUSION
-
Chapter 24: Other Valuation Services Areas
- A: VALUATIONS FOR PUBLIC COMPANIES AND/OR FINANCIAL Reporting
- B: VALUATION ISSUES IN BUY-SELL AGREEMENTS
- C: VALUING DEBT
- D: VALUATION ISSUES IN PREFERRED STOCK
- E: RESTRICTED STOCK VALUATION
- F: VALUATION OF EARLY-STAGE TECHNOLOGY COMPANIES
- G: VALUATION ISSUES RELATED TO STOCK OPTIONS AND OTHER SHARE-BASED COMPENSATION
- H: REAL OPTION VALUATIONS
- I: MAXIMIZING SHAREHOLDER VALUE
- ADDENDUM 1—RATES OF RETURN FOR HIGHER-RISK COMPANIES
-
Chapter 25: Valuation of Healthcare Service Businesses
- INDUSTRY BACKGROUND AND TRANSITION
- HEALTHCARE INDUSTRY’S UNIQUE ATTRIBUTES
- OVERVIEW OF CONSIDERATIONS FOR VALUING HEALTHCARE ENTITIES
- VALUATION PROCESS
- CONTROL PREMIUMS AND MINORITY DISCOUNTS
- DISCOUNTS FOR LACK OF MARKETABILITY
- Valuation Issues for Specific Healthcare Industry Niches
- PUBLIC AND PRIVATE HEALTHCARE SERVICES COMPANIES BY NICHE
- ADDENDUM 1—Rocky Surgery Center, LP
- ADDENDUM 2—Valuation of Paulie Hospital
- Chapter 26: Special Industry Valuations
-
Chapter 27: Valuation Views and Controversial Issues: An Illustration
- THE REPORT
- INTRODUCTION
- NATIONAL ECONOMIC OUTLOOK
- REGIONAL ECONOMIC DATA (AS OF DECEMBER 8, 20X5)
- LOCAL ECONOMY
- INDUSTRY OUTLOOK
- FINANCIAL ANALYSIS OF THE COMPANY
- APPRAISAL OF FAIR MARKET VALUE
- LACK OF MARKETABILITY DISCOUNT
- CORRELATION OF VALUES
- TOTAL CONCLUSION OF VALUE ON A MARKETABLE, CONTROL BASIS
- Index
Product information
- Title: Financial Valuation: Applications and Models, + Website, 3rd Edition
- Author(s):
- Release date: April 2011
- Publisher(s): Wiley
- ISBN: 9780470506875
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