Financial Valuation Workbook, 5th Edition

CHAPTER 4ValTips

4.1 INTRODUCTION

In the companion book, Financial Valuation Applications and Models (FVAM), numerous ValTips are presented to highlight important concepts, application issues, and pitfalls to avoid. These ValTips are reproduced in this chapter with slight modification for presentation on a stand‐alone basis. The ValTips are organized and identified by FVAM chapter.

4.2 CHAPTER 1: INTRODUCTION TO FINANCIAL VALUATION

1. Relying on the wrong standard of value can result in a very different value than would have been concluded under the proper standard of value. In a dispute setting, the use of the wrong standard of value for the jurisdiction can result in a possible dismissal of the value altogether.
2. Although state courts may use the term fair market value in marital dissolution cases, no states have specific and detailed definitions of fair market value.
3. Some companies are worth more dead than alive. It is important for the analyst, particularly when valuing an entire company, to determine if the going concern value exceeds the liquidation value. For a minority interest, there are situations where the going concern value is less than the liquidation value. However, the minority shareholder cannot force a liquidation if the controlling shareholder desires to continue the business as a going concern.
4. Price and cost can equal value but don't necessarily have to equal value. Furthermore, value is future‐looking. Although historical information can be used to set ...