September 2020
Beginner
432 pages
9h 15m
English
Content preview from The Art of Business Valuation
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CHAPTER 12Details for Business Valuators
This chapter discusses topics of particular relevance to business valuators. They include final selection and weighting of the valuation method, standards relating to calculations and conclusions of value, meeting clients' wishes for multiple purposes, engagement agreements, and more on professional judgment.
SELECTION OR WEIGHTING OF METHODS
Often multiple methods will be used to calculate indications of value. As part of a conclusion of value, one method needs to be selected or several methods need to be weighted in order to select a final value.
If the purpose is for estate and/or gift tax, or if you agree with its philosophy, Revenue Ruling 59-60 specifies selecting the best method.1 The ruling argues that multiple methods muddy the water.
Many analysts support, and standards allow a weighting to select a final value. After all, this is an opinion and multiple methods may contribute to the logic and value found. Therefore, for many purposes, valuators perform a weighting of two or more credible methods. Some purposes allow the selection of a range of values. Again, it is important to explain how and why the range was selected.
| Method | Indication of Value | Weight | Weighted Value |
| Asset Method | $120,000 | 0.00% | $0 |
| Market Method – Revenues | $900,000 | 25.00% | $225,000 |
| Market Method – Cash Flow | $860,000 | 75.00% | $645,000 |
| Income Method – Cap. of Earnings | $960,000 | 0.00% | $0 |
| Estimate of Value | 100.00% | $870,000 ... |
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