Download PDF The Enterprise Valuation Theory and Practice

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After all, a buyer may have an entirely new location in mind for the business, and costs associated with leases, utilities, and taxes often change dramatically with relocation. A key consideration to keep in mind if you are selling a professional practice is that the goodwill you have built up over the years is really what you are selling. Sometimes, it is called customer or client lists, or client files, but it is really just goodwill. It is important to recognize and deal properly with certain subtleties and standards in the field of valuation.

Issues and standards to keep in mind include:. If the method used to determine company value uses a pre-debt-service income measure, then debt must usually be subtracted from the resulting figure. If the valuation methodology used is based on price-earnings ratios of comparable public companies and the interest being valued is the entirety of a company, a control premium may be imposed.

This discount, also known as the liquidity discount, comes into play in situations where the business owner's ability to readily sell his or her business is questionable. For example, publicly traded companies are highly marketable, and their shares can be quickly turned into cash. Closely held companies, however, are sometimes far more difficult to sell. Depending on the valuation, it may be necessary to subtract a discount for lack of marketability, or add a premium for the presence of marketability.

When determining valuation of a company, the standard of value must be clearly defined. That is, it must be clear whether the valuation is based on book value, fair market value, liquidating versus going-concern value, investment value, or some other definition of value.

Defining the standard of value is important because of adjustments that are necessary under some, but not all, of these standards. Valuation methods determine the value of a company at a given point in time. Thus, businesses that undergo a valuation process are said to be worth X dollars "as of" a certain date. Values of businesses inevitably change over time, so it is critical to state the date for any valuation. In addition, the information used by the appraiser should be limited to that which would have been available at the as-of date.

The legal definition of the organization under examination is an important factor in any valuation. Different legal forms of entity—corporations, S corporations, partnerships, and sole proprietorships—are all subject to different tax rules, rules which impact the value of the enterprise being appraised. The focus of the valuation must be clearly identified.

The portion of the business enterprise being acquired, the type s of securities involved, the nature of the purchase asset purchase or stock purchase , and possible impact of the transaction on existing relationships such as related party transfers can all affect the value of the entity under examination. Going through a business valuation exercise is useful for any business owner. He or she will learn a lot about the business by applying any one or several of the valuation methods discussed here.

In the end, however, the true value of a business is, much like beauty, in the eye of the beholder. Or, in the case of a business owner who wishes to sell, it is the price another is willing to pay for the business. Brickey, Honer. Buchanan, Doug. Desmond, Glenn, and John A. Third Edition.


Valuation Press, Harrison, David S. February Robbins, Stever. Sliwoski, Leonard J. Javascript is not enabled in your browser. Enabling JavaScript in your browser will allow you to experience all the features of our site. Learn how to enable JavaScript on your browser. See All Customer Reviews.

Analysis and Comparison of Company Valuation Methods in Germany

Shop Books. Add to Wishlist. USD Sign in to Purchase Instantly. Overview This book provides an applied theoretical approach to modern day business valuation. It combines elements from both finance and accounting to help practitioners identify the most suitable method for analysis, showing when and how methods can be applied in different contexts and under specific constraints.


It describes how business valuation techniques can be applied to calculate value in case of transactions, litigation, IPOs, and the fair value under an IFRS framework. The purpose of this book is to offer a guideline for the application of an integrated approach, thereby avoiding "copy and paste" valuations, based on pre-packaged parameters and the uncritical use of models.

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Specifically, an Integrated Valuation Approach IVA should be adopted that encompasses, within any specific method, a wide range of elements reflecting the characteristics and specificities of the firm to be valued. Valuation standards allow for an alignment of both the methods and their application, providing a common basis for valuers. He is President and a member of the board of auditors for a number of listed companies, banks, insurance companies, and leading European entities.

He is also a member of the Italian Accounting Standards Commission, and a member of various academic associations. He is the author of numerous monographs and scientific publications. Table of Contents 1. The latter can be expressed as:. Abbildung in dieser Leseprobe nicht enthalten and Abbildung in dieser Leseprobe nicht enthalten 7.

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  • Alina Ignatiuk Author. Add to cart. Contents 1. Introduction 2. Calculation of WACC 4. Conclusion References: 1. Introduction In a market-driven economy investors are looking for the most profitable placement of their capital. Theory of enterprise valuation model One has to agree with Grant , p. FCF valuation model As described in Grant , p.

    Business Valuation - In Theory and Practice Tutorial - Summary of Business Valuation Methods

    In formal terms, we have: Abbildung in dieser Leseprobe nicht enthalten 2 Before proceeding, it should be noted that we can make a distinction between gross investment, IG, and net investment, IN. Abbildung in dieser Leseprobe nicht enthalten 4 Abbildung in dieser Leseprobe nicht enthalten 5 Additionally, for the purpose of our analysis we make assumptions of zero long-term growth of FCF in the residual period. With these two assumptions in mind residual value can be calculated as: Abbildung in dieser Leseprobe nicht enthalten 6 As a result future value of the company calculated by FCF model and expressed in dollars of current period is equal to: Abbildung in dieser Leseprobe nicht enthalten Having calculated the future value of the company we can derive the equity value,Abbildung in dieser Leseprobe nicht enthalten, and equity value per share in current period, Abbildung in dieser Leseprobe nicht enthalten.

    The latter can be expressed as: Abbildung in dieser Leseprobe nicht enthalten and Abbildung in dieser Leseprobe nicht enthalten 7 [ Sign in to write a comment. Read the ebook. English - Miscellaneous Human Occupation. Introduction to the