CHAPTER 4Assessing the Subject Company
This chapter addresses the information collection and basic analysis of the subject company. A firm understanding of the company, supported by documentation, is necessary in order to effectively make comparisons under both the income and market methods. What we are really assessing is, according to Eddie Davis: “people, processes, and profits.”
No matter how complex a company or situation may seem while working through a valuation, when complete, the valuation analyst should be able to provide a concise and clear analysis. If the analyst cannot do that, then more work is needed. Being able to simplify is a major indication that you are achieving the Art of Business Valuation. Companies are people, processes, and profits. This chapter is about understanding the company.
DOCUMENTS NECESSARY FOR A BUSINESS VALUATION
An engagement to estimate value results in either an opinion or conclusion, or a calculation. In all these cases, the estimate needs to be based on the combination of facts and the opinions of key people inside and outside the company, the assumptions provided to the valuator as well as the assumptions made, and estimates performed by the valuator. Here we are going to look at the documents, forms, and possible interviews used to build a foundation for the statement of value.
Sample Detailed Document Request
A detailed document request could be worded like this:
We have been engaged to prepare a valuation. Please provide all ...
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