Business Valuation: A Primer for the Legal Professional



Business Valuation: A Primer for the Legal Professional

Acknowledgments

Chapter 1

Introduction

Common Situations Requiring a Valuation Specialist

Overview of Topics Covered in the Book

Chapter 2

Keys to Working Successfully with Business Valuation Professionals

When to Get a Valuation Expert Involved

Hiring a Qualified Valuation Professional

Defining the Assignment

Summary of Key Concepts

Chapter 3

Basic Steps to Expect During a Business Valuation Engagement

Engagement Definition

Engagement Letters

Data Gathering

Analysis

Issuance of the Report

Summary of Key Concepts

Chapter 4

Business Enterprise Value: What Does It Represent?

Valuation 101—Book Value Does Not Necessarily Equal Market Value

What Does the Term Business Enterprise Value Represent?

What Is the Amount of Business Enterprise Value (BEV) Based Upon?

Relationship between BEV and the Company’s Underlying Assets

Summary of Key Concepts

Chapter 5

Key Elements of a Company to Understand

Products and/or Services

Product Characteristics

Customer Base

Pricing Power—Company vs. Customer

Competitive Dynamics

Relative Strengths and Weaknesses

Supply Chain

Purchasing Power

Management

Workforce

Miscellaneous Elements

Summary of Key Concepts

Chapter 6

Analyzing a Company’s Historical and Prospective Financial Performance

The Language of Accounting and Finance

The Company’s Storybooks

Reading the Story

Income Statement

Balance Sheet

Normalizing Adjustments

Summary of Key Concepts

Chapter 7

Economic and Industry Analysis—Impact on Valuation

Impact of the Macroeconomy

Gross Domestic Product

Inflation

Interest Rates

Unemployment

Housing Starts

Other Economic Factors

Sources of Economic Data

Local vs. National vs. Global Economy

Impact of the Industry

Industry Factors to Consider

Comparative Financial Data

Sources of Industry Data

Summary of Key Concepts

Chapter 8

The Income Approach to Valuation

Present Value Concept

Total Invested Capital vs. Direct Equity Applications of Income Approach

Capitalized Cash Flow Method

Discounted Cash Flow Method

Present Value of Distributable Cash Flow

Assessing the Reasonableness of Projected Distributable Cash Flow

Assessing the Reasonableness of the Rate of Return

Assessing the Reasonableness of Long-Term Growth Rate

Summary of Key Concepts

Chapter 9

Estimating a Required Rate of Return for Use in the Income Approach

Impact of the Rate of Return on Income Approach Results

What Does the Rate of Return Represent?

Cost of Equity Capital

Cost of Debt Capital

Capital Structure

Summary of Key Concepts

Chapter 10

The Market Approach to Valuation

What Are Market Multiples?

Total Invested Capital vs. Direct Equity Applications of the Market Approach

Different Types of Valuation Multiples

Choosing a Market Multiple to Consider

Adjusting Financial Results of Comparable Companies

Selecting Level of Market Multiple

Applying the Multiple to the Subject Company Results

The Guideline Company Method

The Transaction Method

Summary of Key Concepts

Chapter 11

Treatment of Non-operating Assets

Example Illustrating Reason Why Non-operating Assets Need to Be Isolated

Example Illustrating Underperforming Business Segment

Example Illustrating Add-Back of Owner’s Perquisites

Summary of Key Concepts

Chapter 12

The Asset Approach to Valuation

Applicability of the Asset Approach

Market Value and Book Value

Premises of Value

Built-In Capital Gain Tax Discount

The Procedures of the Asset Approach

The Asset Approach—An Illustrative Example

Summary of Key Concepts

Chapter 13

Reconciling Results Indicated by Application of Various Valuation Approaches

Strengths and Weaknesses of Valuation Approaches

Appropriateness of Methodology

Additional Points for Consideration

Final Estimate of Value

Summary of Key Concepts

Chapter 14

The Levels of Value Framework

What Are Minority Discounts and Lack of Marketability Discounts?

What Level of Value Results from the Application of Each Valuation Method?

Determination of Discount for Lack of Control and Control Premiums

Determination of Discount for Lack of Marketability

Common Pitfalls in the Application of Valuation Discounts and Premiums

Other Valuation Discounts

Summary of Key Concepts

Chapter 15

The Basics of Individual Asset Valuation

Premises of Value for Individual Tangible and Intangible Assets

Valuation of Personal Property

Valuation of Real Property

Types of Intangible Assets

Valuation of Identifiable Intangible Assets

Valuation of Goodwill

Putting It All Together

Summary of Key Concepts

Chapter 16

Valuation Nuances in Various Litigation Contexts

Family Law Litigation

Other Special Valuation Issues in Family Law

Shareholder Disputes

Diminution in Business Value

Summary of Key Concepts

Index

About the Author

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