The Lawyer's Business Valuation Handbook: Understanding Financial Statements, Appraisal Reports, and Expert Testimony

Pirmais vāks
American Bar Association, 2000 - 472 lappuses
This is a practical guide that will help lawyers and judges assess the qualifications of a business appraiser and the reliability of the information presented, and will enable them to work with valuation issues more efficiently and effectively.

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Saturs

Defining Value in the Relevant Context Definitions and Premises of Value
3
Commonly Used Definitions of Value
4
Fair Value
7
Investment Value
8
Intrinsic or Fundamental Value
9
Premises of Value
10
Other Terms Referring to Value
12
GoingConcern Value
13
Court Reaction to Rules of Thumb
191
References and Sources
192
Transaction Databases with PriceRevenue and PriceDiscretionary Earnings Ratios
193
Discounts and Premiums
194
Distinguishing the Minority Factor from the Marketability Factor
195
Minority Versus Control
197
Quantifying Minority or Lack of Control Discounts
198
Discounts for Lack of Marketability
202

Strategic Value Synergistic Value
14
Sources of Authority for Definition of Value
15
Legally Binding Rules and Regulations
16
NonLegally Binding Administrative Rulings
17
Direction from the Court
18
Use of IRS Authority in NonTax Situations
19
Business Appraisal Professional Credentials and Standards
20
Other Organizations Offering Business Valuation Guidance
24
Other Professional Organization Standards
27
Admissibility and Impact of Expert Business Valuation Evidence
29
Supreme Court Affirms Courts Gatekeeper Role
30
General Electric v Joiner
31
Selecting and Evaluating the Appraiser
33
Professional Certifications and the Case for Peer Review
34
The CPA as Business Appraiser
35
The Financial Analyst as Business Appraiser
37
The Broker as Business Appraiser
38
The Academic as Business Appraiser
39
The Appraisal Opinion Must Stay Within Expertise
42
Source Documents Must Be Those Typically Relied Upon by Appraisal Experts
43
Subjective Statements Must Be Documented
44
The Down and Dirty Appraisal
45
Original and Personally Developed Appraisal Methods Create Risk
47
Questions to Ask
48
Discovery Rules for Business Valuation Expert Evidence
50
Disclosure Requirements and Written Appraisal Reports
51
Jurisdictions That Follow and Deviate from FRCP26a2
52
Field Visit
54
Federal Rule of Civil Procedure 34
56
Sanctions for Failure to Comply with Discovery Order
58
Subpoena for Production of Documents or Entry Upon Land in Possession or Control of Nonparties
59
Subpoena of Experts Work Papers
60
Timing of Service
61
Timing of Request and Special Rules
62
States That Do Not Allow Depositions of Expert Witnesses as a Matter of Course
63
Involving Your Own Expert in Depositions of Opposing Experts
64
Summary
65
Alternative Dispute Resolution
69
Alternative Dispute Resolution Act of 1998
71
Choosing Arbitrators or Mediators
72
Process for Selecting Arbitrators
73
Communications with Parties and Lawyers
74
Reporting an Arbitration Conclusion
75
Alternative Dispute Resolution in Federal Tax Disputes
76
Alternative Dispute Resolution References
77
Business Valuation Approaches and Methods
79
Overview of Accepted Business Valuation Approaches Methods and Procedures
81
Hierarchy of Approaches Methods and Procedures
82
Summary of Business Appraisal Approaches and Methods
84
Business Appraisal Procedures
84
Invested Capital Versus Equity
84
Summary
86
Financial Statement Terminology Used in Business Appraisal
88
The Basic Financial Statements
89
Balance Sheet Concepts
91
Capital Structure
92
Net Working Capital
93
Sales Net Revenues
94
EBITDA Earnings Before Interest Taxes Depreciation and Amortization
95
DebtFree Net Income DFNI
96
Net Income
97
Net Cash Flow to Equity
98
Variables Affecting Net Cash Flow
99
Changes in Debt
100
Summary
101
The Income Approach
103
The Concept of Discounting
105
The Concept of Capitalizing
106
The Basic Capitalized Cash Flow Model
107
The Income Capitalization Growth Model Gordon Growth Model
108
The Basic Discounted Cash Flow Model
110
The Discounted Cash Flow Model Using a Terminal Value
112
Capitalization Model Versus Market Multiples for Estimating Terminal Value
115
Concept and Estimation of Discount Rates
116
A RiskFree Rate and a Premium for Risk
117
The BuildUp Model
118
The Capital Asset Pricing Model
120
Concept and Estimation of Capitalization Rates
124
Estimating Equity Capitalization Rates
125
Valuing Invested Capital Versus Valuing Equity
126
Derivation of Weights for WACC
127
Preference for Net Cash Flow in Income Approach
129
Questions to Ask
134
Questions for Capitalization Method
135
References
136
The Market Approach
137
Valuing Total Invested Capital Versus Direct Valuation of Equity
139
Sources of Market Approach Data
140
Soles of Private Companies
141
Developing Market Multiples for Valuation
142
Equity Multiples
144
Time Periods for Company Financial Statement Data
145
Criteria for Selecting Guideline Companies
146
How Many Guideline Companies?
147
Relationship Between Market Multiples and Capitalization Rates
151
Multiples Selected Should Be Based on Comparative Analysis
152
Different Multiples May Be Higher or Lower Relative to Guideline Companies
154
Illustration of Valuation by Market Approach
155
Variations for Smaller Companies and Professional Practice Valuations
156
Involvement of the OwnerManager
158
Availability of Comparative Accounting Data
160
Offers to Buy
161
Questions to Ask
162
References
163
Private Company Sale Databases
164
The AssetBased Approach
166
Steps in the Adjusted Net Asset Value Method
167
Valuation Premises for Adjusting Balance Sheet Values
168
When Are AssetBased Methods Used?
170
AssetBased Approach References
171
Goodwill and the Excess Earnings Method
172
Background of the Excess Earnings Method
173
Basic Steps in the Excess Earnings Method
174
A Sanity Check for Validity of an Excess Earnings Method Value
178
Use of Historical Averages Impractical
179
Common Errors in Applying the Excess Earnings Method
182
Failure to Allow for Owners Compensation
183
Using Rates in the Revenue Ruling 68609 Illustration Instead of Currently Supportable Rates
184
Excess Earnings Method References
185
Rules of Thumb
186
General Nature of Rules of Thumb
187
Rules of Thumb Not CashEquivalent Prices
188
Degrees of Marketability or Lack Thereof
203
Other Factors Affecting Discounts for Lack of Marketability
204
Benchmark for Marketability
205
Restricted Stock Studies
206
PreIPO Studies
209
Court Recognition of Marketability Discount Studies
213
Discounts for Lack of Marketability for Controlling Interests
214
How the Applicable Definition of Value Affects the MinorityControl and Discount for Lack of Marketability Adjustments
215
Fair Value
216
Market Approach
217
Other Discounts at the Entity Level
218
Trappedin Capital Gains Discount
219
Litigation Risk
221
Other Discounts or Premiums at the Shareholder Level
222
Blockage
223
References
224
Widely Used Premium and Discount Data References
225
Reconciliation of Value Indications
226
Does the Conclusion Appraise the Right Property?
227
Reconciling Divergent Results Among Business Valuation Methods
228
Weighting of Valuation Method Results
229
Explicit Weighting
231
Implicit Weighting
232
Final Value Estimate
233
Questions to Ask
234
Fundamentals of Company Analysis
235
Financial Statement Adjustments
237
Normalizing Adjustments
239
Discontinued Operations
240
Depreciation and Depletion Methods and Schedules
241
Other Normalizing Adjustments
242
Control Adjustments
243
Insider Transactions
246
Separating Operating from Nonoperating and Excess Assets
247
Treatment of Nonoperating and Excess Assets
248
Illustrative Financial Statement Adjustments
249
Balance Sheet Adjustments
252
Financial Statement Adjustment References
253
Comparative Financial Statement Analysis
254
Introduction
255
Horizontal Analysis
256
Trend Analysis
259
Vertical Analysis
262
Analysis of Profitability
268
Analysis of Liquidity
276
Analysis of LongTerm Solvency
278
Questions to Ask
280
Economic and Industry Analysis
281
National EconomyRecent Status
283
National EconomyOutlook
284
IndustryRecent Status
287
IndustryOutlook
289
Regional Information
292
Summary
294
Valuations for Specific Purposes
297
Valuations for Federal Tax Matters
299
Fair Market Value Assumes Adequate Knowledge
301
Qualifications of Appraisers
302
Burden of Proof
304
Adequate Disclosure of Gifts
305
Approaches to Value
306
Income Approach
307
AssetBased Approach
309
Combined Minority and Lack of Marketability Discounts
311
Blockage
312
Key Person Discount
313
Trappedin Capital Gains Taxes
314
Charitable Contributions
315
Contingent Liabilities
316
Subsequent Events and Information
317
Subsequent Sales
318
BuySell Agreements
321
Weighting of Valuation Method Results
322
Pressure to Settle
324
Questions to Ask
325
Web Sites
326
Marital Dissolution Valuations
327
Goodwill
330
BuySell Agreements
336
Covenants Not to Compete
341
Trappedin Capital Gains Taxes
343
Adequacy of Evidence
345
Access to Records
346
Questions to Ask
347
Minority Discounts
348
Shareholder and Partner Disputes
350
Fair Value Standard in Most Dissent and Dissolution Suits
351
Delaware Block Rule Expanded
352
Discounts or Premiums Often Major Issue
354
Lack of Entire Fairness May Broaden Remedies
359
Fair Value Is Not Fair Market Value
360
States Borrow Other States Precedents
361
Questions to Ask
362
Employee Stock Ownership Plans
364
When Appraisals Are Required
365
IRS Audit Guidelines
366
Control Versus Minority
367
ESOP Financial Statement Adjustments
368
Repurchase Liability
369
Relevant Case Law
370
Las Vegas Dodge Inc v US
371
Howard v Shay
372
Reich v Valley National Bank of Arizona
373
Gary L Eyler v Commissioner
374
William R Davis v Torvick Inc
375
Summary
376
References for ESOP Valuation
377
Medical Practice Valuation Issues
379
Physician Compensation
380
Medicare Fraud and Abuse
381
Comparable Transactions
382
Possible Preferences for Venture Capital Stock
383
Need to Consider Actuarial Risk
384
Failing to Take into Account Senior Doctor Rights or Minority Ownership
385
Conclusion
386
Quick Review Checklist for Basic Requirements and General Report Quality
387
Glossary of Valuation Terms
397
Business Appraisal Professional Organizations
417
Table of Cases
424
General Bibliography
433
Index
458
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