PPC's Guide to Business Valuations
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PPC's Guide to Business Valuations

By Jay E. Fishman, Shannon P. Pratt, James R. Hitchner and J. Clifford Griffith


This guide, co-authored by Jay Fishman and Shannon Pratt is crucial to your BV practice to ensure you have the most current and comprehensive guidance. It takes you through each step of a valuation engagement and includes a case study of a restaurant valuation.
1500 pages



Table of Contents

INTRODUCTORY MATERIAL
CHAPTER 1: OVERVIEW OF A BUSINESS VALUATION ENGAGEMENT
CHAPTER 2: OVERVIEW OF VALUATION TERMS AND METHODOLOGY
CHAPTER 3: PRE-ENGAGEMENT PROCEDURES
CHAPTER 4: DATA GATHERING AND ANALYSIS
CHAPTER 5: CAPITALIZED AND DISCOUNTED RETURNS METHODS
CHAPTER 6: VALUATION METHODS BASED ON GUIDELINE COMPANY DATA
CHAPTER 7: UNDERLYING ASSETS, EXCESS EARNINGS, AND OTHER METHODS
CHAPTER 8: WRAPPING UP THE ENGAGEMENT
CHAPTER 9: VALUATION REPORTS
CHAPTER 10: ESTATE AND GIFT TAX VALUATIONS
CHAPTER 11: VALUING PROFESSIONAL PRACTICES
CHAPTER 12: VALUATIONS FOR DIVORCE ENGAGEMENTS
CHAPTER 13: LITIGATION SUPPORT SERVICES
CHAPTER 14: FAMILY LIMITED PARTNERSHIPS
CHAPTER 15: FAIR VALUE UNDER SHAREHOLDER DISSENT AND OPPRESSION ACTIONS
CHAPTER 16: VALUING NON-TRADED FINANCIAL OPTIONS
CHAPTER 17: INTANGIBLE ASSETS
BUSINESS VALUATIONS CHECKLISTS AND PRACTICE AIDS
Continuing Professional Education
CPE & Training Solutions
INDEX


INTRODUCTORY MATERIAL

  • PREFACE
  • HOW TO USE THE GUIDE
  • ACKNOWLEDGMENTS
  • ACKNOWLEDGMENT OF COPYRIGHTS
  • ABOUT THE AUTHORS . . .
  • LIST OF SUBSTANTIVE CHANGES AND ADDITIONS


CHAPTER 1: OVERVIEW OF A BUSINESS VALUATION ENGAGEMENT

  • 100 INTRODUCTION
    • What Is a Closely Held Business?
      • How Does Size Affect the Definition?
      • Does the Approach Used to Value a Publicly Traded Company Differ?
    • What Is a Valuation Engagement?
      • Reasons for Valuation.
      • Scope of Service.
    • For Whom Is This Guide Written?
      • How the Guide Is Organized
      • Glossary of Valuation Terms.
      • Notation System.
  • 101 THE ROLE OF THE CONSULTANT IN A BUSINESS VALUATION ENGAGEMENT
    • The Role of Objectivity and Independence in a Valuation Engagement
      • There Is Normally a Presumption of Objectivity.
      • Protecting the Appearance of Objectivity.
      • Objectivity of Consultants Who Perform Litigation Support Services.
      • Independence.
    • Advisory Engagements
    • Other Professional Standards
      • Standards of the American Institute of Certified Public Accountants (AICPA).
      • Uniform Standards of Professional Appraisal Practice of the Appraisal Foundation.
      • Standards of the American Society of Appraisers.
      • Standards of the Business Valuation Committee of the ASA.
      • Standards of the National Association of Certified Valuation Analysts.
      • Standards of the Institute of Business Appraisers.
      • Guidelines of the Internal Revenue Service.
    • How These Requirements Affect Exempt Consultants
    • Impact of Accounting Guidance
      • FASB's Future Role in the Valuation Field.
    • Impact of Federal Legislation on Business Valuers
      • FIRREA.
      • Gramm-Leach-Bliley Act.
      • Treasury Department Circular No. 230.
      • Pension Protection Act of 2006 (PPA).
      • Small Business and Work Opportunity Tax Act of 2007.
      • Standards of Practice.
      • Sarbanes-Oxley Act of 2002.
      • Public Company Accounting Oversight Board (PCAOB).
  • 102 EDUCATION AND EXPERIENCE
    • Evaluate Capabilities
      • Developing the Expertise without Prior Experience.
      • Hiring an Experienced Valuation Consultant from the Outside.
      • Forming a Strategic Alliance with an Existing Valuation Consultant.
    • Training Requirements
      • American Institute of Certified Public Accountants.
      • American Society of Appraisers.
      • National Association of Certified Valuation Analysts.
    • Institute of Business Appraisers
    • Obtaining Relevant Experience
    • Resources That Are Needed
      • Personnel Resources.
      • Library Resources.
      • Computer Resources.
  • 103 OVERVIEW OF A VALUATION ENGAGEMENT
    • Overall Engagement Approach
    • Pre-engagement and Planning Procedures
      • Evaluate Whether to Accept the Engagement.
      • Prepare a Detailed Work Program.
      • Develop a Time and Fee Estimate.
      • When Appropriate, Obtain Approval of the Work Program, Staff Assignments, and Fee Estimate.
      • When Necessary, Prepare a Proposal Letter or Oral Presentation.
      • Obtain an Engagement Letter.
    • Data Collection, Analysis, and Valuation Procedures
      • Collect Data Appropriate for the Valuation Methods Used.
      • Perform the Valuation Methods under the Supervision of an Experienced Individual.
    • Reporting and Wrap-up Procedures
      • Determine the Final Estimate of Value.
      • Document Work Performed and Conclusions Reached.
      • Consider Obtaining a Representation Letter (If Possible).
      • Draft the Valuation Report.
      • Perform a Detailed Review of the Workpapers and Report Draft.
      • If Practical, Obtain an Independent Internal Review of the Workpapers and Report Draft.
      • Resolve Any Professional Disputes.
      • Discuss Engagement Findings and Report Draft with the Client.
      • Determine That All Review Points and Open Items Have Been Cleared.
      • Prepare the Final Report.
      • Sign the Report or Transmittal Letter.
      • File the Workpapers.
      • Evaluate the Staff's Performance.
  • APPENDIX 1A: Professional Standards and Guidelines
    • APPENDIX 1A-1: AICPA Statement on Standards for Valuation Services No.1, Valuation of a Business, Business Ownership Interest, Security or Intangible Asset
    • APPENDIX 1A-2: ASA Business Valuation Standards (Permission to Reprint Granted by the American Society of Appraisers)
    • APPENDIX 1A-3: NACVA Professional Standards as of May 31, 2002 (revised November 20, 2007)
    • APPENDIX 1A-4: Business Appraisal Standards as Promulgated by The Institute of Business Appraisers, Inc. Effective October 25, 2001 (Reprinted with Permission of The Institute of Business Appraisers, Inc.)
    • APPENDIX 1A-5: Internal Revenue Service Business Valuation Guidelines Release Date: July 27, 2006
    • APPENDIX 1A-6: Other Professional Standards of The American Institute of Certified Public Accountants
  • APPENDIX 1B: Comparisons of Professional Standards
    • APPENDIX 1B-1: BV Standards: The Positive Side
    • APPENDIX 1B-2: Comparison of SSVS No. 1 to the ASA Standards and USPAP
  • APPENDIX 1C: Business Valuation Reference Materials


CHAPTER 2: OVERVIEW OF VALUATION TERMS AND METHODOLOGY

  • 200 INTRODUCTION
    • Why This Chapter Is Important
  • 201 VALUATION TERMS
    • What Is an Appraisal?
      • Appraisal versus Valuation.
    • What Is Value?
      • Fair Market Value.
      • Fair Value.
      • Investment Value.
      • Intrinsic Value.
      • Going Concern Value.
      • Liquidation Value.
      • Book Value.
    • How Does the Definition of Value Affect a Valuation Engagement?
  • 202 VALUATION PRINCIPLES
    • The Value of a Business Is Equal to the Present Worth of the Future Benefits of Ownership
    • Value Is Not Always a Single Number
    • Value Is Based on a Specific Point in Time--The Valuation Date
    • Applying the Principles to a Valuation Engagement
      • Defining the Subject Being Valued.
      • Defining Future Benefits.
  • 203 VALUATION APPROACHES AND METHODS
    • Valuation Approaches
      • Income Approach.
      • Market Approach.
      • Asset Based Approach.
      • Approaches versus Methods.
      • Types of Valuation Methods.
    • Discounted Future Returns and Capitalized Returns Methods
      • Discounted Future Returns Methods.
      • Capitalized Returns Methods.
      • Discount and Capitalization Rates.
      • Income Approach Valuation Methods.
    • Value Multiples Involving Guideline Data
      • What Are Value Multiples?
      • Applying Value Multiples Methods.
      • Price of Equity versus Market Value of Invested Capital (MVIC).
      • Multiple of Discretionary Earnings.
      • Rules of Thumb.
      • Company Specific Methods.
    • Underlying Asset Methods
      • Net Asset Value Method.
      • Liquidation Value Method.
      • Excess Earnings Method.
  • 204 SELECTING VALUATION METHODS
    • Authoritative Literature
      • Uniform Standards of Professional Appraisal Practice.
      • Revenue Ruling 59-60.
    • The Selection Process
    • Step 1--Consider the Requirements of the Engagement
      • Purpose of the Engagement and Definition of Value.
      • Legal Requirements.
      • Type of Ownership Interest.
      • Data Availability.
    • Step 2--Consider Industry and Company Factors
      • Industry Considerations.
      • Company Factors.
    • Step 3--Determine Whether Asset-based Methods and/or Earnings-based Methods Are Appropriate
    • Step 4--Consider Whether Guideline Data Is Available
    • Step 5--Choosing Asset-based Valuation Methods
    • Step 6--Choosing Earnings-based Methods
      • Considering Expected Future Net Cash Flow or Earnings.
      • Guideline Data and Other Considerations.
      • Benefit Streams.
      • Choosing a Benefit Stream.
      • Benefit Stream with Net Normalized Losses.
    • Case Study--Selecting Valuation Methods
      • Background.
      • Asset-based versus Earnings-based Methods.
      • Considering Value Multiples Methods Based on Guideline Data.
      • Considering Expected Future Net Cash Flow or Earnings.
    • Always Use Judgment
  • 205 VALUATION METHODS RELATING TO VERY SMALL BUSINESSES
    • What Is a Very Small Business?
      • Purchase and Sale Characteristics of Very Small Businesses.
    • Valuation Methods Relating to Very Small Businesses
      • Multiple of Discretionary Earnings Method.
      • Excess Earnings Method.
      • Guideline Transaction Method.
    • Methods That May Not Be Particularly Useful in Valuing Very Small Businesses
  • APPENDIX 2A: Glossary of Valuation Terms
  • APPENDIX 2B: Summary of Revenue Rulings
  • APPENDIX 2C: Factors to Consider in Selecting Valuation Methods
  • APPENDIX 2D: Notation System Used in This Guide


CHAPTER 3: PRE-ENGAGEMENT PROCEDURES

  • 300 INTRODUCTION
    • Pre-engagement Procedures Are Also Important for Accountants and Analysts in Industry
    • What Are Pre-engagement Procedures?
  • 301 ENGAGEMENT ACCEPTANCE
    • What Data Should Be Considered and What Assessments Should Be Made before Accepting the Engagement?
      • Assessing Professional Competence.
      • Understanding the Nature and Risks of the Engagement.
      • Conflicts of Interest and Independence.
      • Selecting Valuation Methods.
      • Assessing Engagement Feasibility and Acceptance Considerations.
  • 302 PREPARING WORK PROGRAMS
    • What Is a Work Program?
    • How Should a Work Program Be Formatted?
    • Authors' Suggested Work Program--the FSP
  • 303 DEVELOPING TIME AND FEE BUDGETS
  • 304 ENGAGEMENT LETTERS
    • Establishing an Understanding with the Client
    • Content
    • Engagement Letters for Litigation Support Services
  • 305 PROCEDURES FOR INDUSTRY ACCOUNTANTS AND ANALYSTS
    • Evaluating Whether to Perform a Valuation Internally
    • Preparing Work Programs
    • Time and Resource Budgets
    • Communicating the Engagement Plan
      • Matters to Be Covered in the Communication.
  • 306 EXAMPLE OF PRE-ENGAGEMENT DOCUMENTATION
  • APPENDIX 3A: Illustrative Engagement Acceptance Form Business Valuation Engagement
  • APPENDIX 3B: Illustrative Engagement Letter


CHAPTER 4: DATA GATHERING AND ANALYSIS

  • 400 INTRODUCTION
  • 401 DATA GATHERING
    • What Type of Data Should Be Gathered?
    • Collect Data That Is Available or Determinable as of the Valuation Date
    • Use a Checklist to Determine What Is Available
  • 402 INTERNAL COMPANY INFORMATION
    • Financial Information
    • Historical Financial Statements for Five Years
      • What If Financial Statements Have Not Been Prepared for the Last Five Years?
      • What If the Company Changed Its Legal Status during Recent Years?
      • What If the Company Being Valued Has Ownership Interests in Other Companies?
      • Interim Financial Statements.
    • Subsequent Events
      • Known or Knowable.
      • Subsequent Period Financial Statements.
    • Tax Returns
    • Prospective Financial Information
    • Other Financial Information
    • Preliminary Analysis of the Financial Information
    • Completeness of the Information
    • Usability of the Data
      • Consolidated Financial Statements May Be Inadequate.
      • What If the Financial Information Is Incomplete or Unusable?
    • Apparent Departures from GAAP
      • The Consultant's Responsibility for Detecting GAAP Errors.
      • Reviewing the Accountant's Report for GAAP Errors.
      • What If a CPA Has Not Been Associated with the Financial Statements?
    • Legal Documents Concerning Ownership Information
    • Operational Data
      • The Company's Website.
      • Site Visits.
      • Interviews.
      • Other Documents.
    • Get a Receipt for the Return of Client Documents
    • Assessing the Data Obtained
  • 403 ECONOMIC, INDUSTRY, AND MARKET DATA
    • What Type of Data Is Needed?
      • Relating the Need for External Data to the Method to Be Used.
      • Identifying Key External Factors.
      • Relating Key External Factors to Data Requirements.
      • Major Sources of External Data.
    • National Economic Data
      • Possible Sources of National Economic Data.
    • Regional and Local Economic and Demographic Data
    • Industry Data
      • General Industry Data.
      • Comparative Financial Data.
    • Assessing Economic and Industry Data
      • How Do Those Assessments Affect the Valuation?
    • Market Data
    • Electronic Resources
    • Applying Economic, Industry, and Market Data to the Valuation
  • 404 REVIEW AND ADJUSTMENT OF THE FINANCIAL STATEMENTS
    • A General Discussion about Adjustments
      • How Are Adjustments Posted and Presented?
      • Adjustments to the Balance Sheet and Income Statement May Not Be Linked.
    • GAAP Adjustments
      • Common GAAP Departures.
      • Adjusting Tax Returns.
      • A Special Problem--Unrecorded Revenue.
      • Comparability of Accounting Principles.
    • Normalization Adjustments
    • Adjustments Related to the Balance Sheet
      • Nonoperating Assets, Excess Assets, and Asset Shortages.
      • Related Party Loans.
    • Income Statement Adjustments
      • Owner's Compensation.
      • Benefits.
      • Family Members.
      • Nonoperating Income and Expenses.
      • Nonrecurring Income and Expenses.
      • Related Party Leases.
      • Fee Arrangements.
    • Income Taxes
      • Determining the Company's Taxes Based on the Tax Rates of a Known Purchaser.
      • Determination of Tax Provisions for Partnerships, Proprietorships, and S Corporations.
  • 405 FINANCIAL STATEMENT ANALYSIS
    • Comparing Financial Statement Data
    • Ratio Analysis
    • Peer Comparisons
    • Reviewing Prospective Information
  • 406 PROCEDURES FOR INDUSTRY ANALYSTS AND ACCOUNTANTS
    • Data Gathering
    • Data Analysis and Adjustment
  • 407 CASE STUDY ON BUSINESS VALUATION
    • Background
    • Financial Statement Adjustments
      • Income Statement Adjustments.
      • Balance Sheet Adjustments.
  • APPENDIX 4A: Suggested Sources of External Data
  • APPENDIX 4B: Sample Pages from Selected Data Sources
    • APPENDIX 4B-1: Sample Pages from Done Deals
    • APPENDIX 4B-2: Sample Page from BIZCOMPS
    • APPENDIX 4B-3: Sample Pages from Financial Studies of the Small Business
    • APPENDIX 4B-4: Sample Page from Pratt's Stats
  • APPENDIX 4C: Electronic Sources of Business Valuation Data
  • APPENDIX 4D: Illustrative Company and Industry Background Information Form
  • APPENDIX 4E: Case Study--Balance Sheet Data
    • APPENDIX 4E-1: SJM Restaurants, Inc. Balance Sheets with Common Size Data (Unadjusted) (Unaudited)
    • APPENDIX 4E-2: SJM Restaurants, Inc. Balance Sheet Adjustments (Unaudited)
    • APPENDIX 4E-3: SJM Restaurants, Inc. Normalized Balance Sheets with Common Size Data (Unaudited)
  • APPENDIX 4F: Case Study--Income Statement Data
    • APPENDIX 4F-1: SJM Restaurants, Inc. Income Statements with Common Size Data (Unadjusted) (Unaudited)
    • APPENDIX 4F-2: SJM Restaurants, Inc. Operating Expense Detail--(Unadjusted) (Unaudited)
    • APPENDIX 4F-3: SJM Restaurants, Inc. Income Statement Adjustments (Unaudited)
    • APPENDIX 4F-4: SJM Restaurants, Inc. Normalized Income Statements with Common Size Data (Unaudited)
  • APPENDIX 4G: SJM Restaurants, Inc. Normalized Financial Ratios (Unaudited)
  • APPENDIX 4H: National Economic Analyses
    • APPENDIX 4H-1: National Economic Analysis (2008-2010)
    • APPENDIX 4H-2: National Economic Analysis (2007-2009)
    • APPENDIX 4H-3: National Economic Analysis (2006-2008)
    • APPENDIX 4H-4: National Economic Analysis (2005-2007)
    • APPENDIX 4H-5: National Economic Analysis (2004-2006)
    • APPENDIX 4H-6: National Economic Analysis (2003-2005)
    • APPENDIX 4H-7: National Economic Analysis (2002-2004)


CHAPTER 5: CAPITALIZED AND DISCOUNTED RETURNS METHODS

  • 500 INTRODUCTION
    • Basic Principle
    • Precondition for Using the Discounted Future Returns Or the Capitalized Returns Methods
    • Important Characteristics of the Valuation Methods Discussed in This Chapter
    • Overview of the Discounted Future Returns Method
    • Overview of the Capitalized Returns Method
    • Which Method Is More Appropriate?
    • How the Material in This Chapter Is Organized
  • 501 DETERMINING WHICH VARIABLE TO DISCOUNT OR CAPITALIZE
  • 502 THE DISCOUNTED FUTURE RETURNS METHOD
    • Conditions Appropriate for the Discounted Future Returns Method
    • Conditions That May Make a Discounted Returns Method Inappropriate
    • Steps That Should be Completed under a Discounted Future Returns Method
    • Step 1--Obtain (Or Prepare) a Financial Forecast
      • What Is a Financial Forecast?
      • How Does a Forecast Differ from a Projection?
      • Is the Prospective Information Used in a Discounted Future Returns Method a Forecast Or a Projection?
      • Factors to Consider in Preparing Or Reviewing a Forecast.
      • The Financial Forecast Should Be Based on Assumptions about Normalized Operations.
      • What To Do When Management and the Consultant Cannot Agree on the Forecast.
      • Key Factors and Assumptions Must Be Identified.
      • Assumptions about Revenue and Receivables.
      • Forecasting the Effects of Inflation.
      • Forecasting Growth of Product Sales Levels.
      • Forecasting a Specific Company's Revenue Growth.
      • Revenue Factors for Certain Industries.
      • Accounts Receivable.
      • Assumptions about Cost of Sales and Inventory.
      • Assumptions about Other Costs.
      • Assumptions about Property and Equipment and Related Depreciation.
      • Assumptions about Debt and Equity.
      • Assumptions about Income Taxes.
      • The Key Factors and Assumptions Should Be Reasonable.
      • The Forecast Period Should Extend through the Year after a Stabilized Level of Operations Is Obtained.
      • Forecasting the Terminal Year.
      • Total Number of Years to Be Included in a Forecast.
      • If Possible, the Forecast Should Be Approved by the Responsible Party.
      • Do CPA Valuation Consultants Have Additional Presentation and Reporting Responsibilities for Forecasts?
      • The Consultant Should Consider Obtaining Other Resources on Preparing Forecasts.
      • Negative or Marginally Positive Forecasted Operating Results.
    • Illustration of a Financial Forecast
      • A Simplified Forecast Is Used.
      • Important Assumptions Made in Preparing the SJM Forecast.
    • Step 2--If Necessary and Applicable, Adjust the Financial Forecast for Any GAAP Differences or Normalization Adjustments
      • GAAP Adjustments.
      • Other Adjustments.
    • Step 3--If Necessary, Recompute (or Compute) Tax Provisions for Each Year In the Financial Forecast
    • Step 4--Adjust the Net Earnings Amounts for Each Future Year to Net Cash Flow (If Appropriate)
      • Formula for Converting Net Earnings to Net Cash Flow.
      • Add Back Noncash Charges.
      • Cash Receipts and Disbursements That Result from Balance Sheet Transactions.
    • Step 5--Estimate the Discount Rate
    • Step 6--Estimate the Value of the Company during the Terminal Year
      • The Gordon Growth Model.
    • Step 7--Discounting Future Operations to Arrive at an Estimate of Value
      • Discounting Techniques.
      • The Mid-year Discounting Convention.
      • Applying the Mid-year Convention by Specifying the Number of Months.
      • Using the Gordon Model with the Mid-year Convention.
      • Applying the Mid-year Convention by Modifying the Discount Factor.
    • Step 8--Perform "Sanity Checks"
    • Step 9--Adjust the Value for the Impact of Nonoperating Assets, Excess Assets, or Asset Shortages (If Necessary)
    • Step 10--Adjust the Estimated Value for Marketability Discounts, Control Premiums, or Minority Interest Discounts (If Necessary)
    • Illustration of the Discounted Net Cash Flow Method Using SJM Restaurants, Inc.
      • Determination of SJM's Terminal Value.
      • Determination of SJM's Operating Value.
      • Adding Back Nonoperating Assets.
  • 503 THE CAPITALIZED RETURNS METHOD
    • Steps That Should Be Completed under a Capitalized Returns Method
    • Step 1--Obtain (or Prepare) Financial Statements for a Representative Time Period
    • Step 2--If Necessary and Applicable, Adjust the Financial Statements for any GAAP Differences or Normalization Adjustments
    • Step 3--If Necessary, Recompute (or Compute) State and Federal Income Taxes
      • The Company's Tax Rates as of the Valuation Date Should Be Used.
      • Determining the Company's Taxes Based on the Tax Rates of a Known Purchaser.
      • Determination of Tax Provisions for Pass-through Entities.
    • Step 4--Adjust the Benefit Stream from Net Earnings to Net Cash Flow (If Necessary)
    • Step 5--Estimate the Cap Rate
    • Step 6--Determine the Period of Operations That Should Be Capitalized
      • The Most Recent Operations.
      • The Forecasted Next Year's Operations.
      • Average of Operations for Several Recent Years.
      • Net Profit Margin.
    • Step 7--Perform the Capitalized Returns Computation
      • Negative or Marginally Positive Cash Flow or Earnings.
    • Step 8--Perform "Sanity Checks"
    • Step 9--Determine the Appropriate Value for Nonoperating Assets, Excess Assets, and Asset Shortages (If Required)
      • Application of Step 9 (When Required).
    • Step 10--Adjust the Estimated Value for Marketability Discounts, Control Premiums, or Minority Interest Discounts (If Necessary)
    • The Capitalized Net Cash Flow Method Related to SJM Restaurants, Inc.
  • 504 DISCOUNT AND CAPITALIZATION RATES
    • Discount Rate Defined
    • Impact of the Standard of Value
    • Capitalization Rate Defined
    • Relationship Between Discount Rate and Capitalization Rate
  • 505 THE CAPITAL ASSET PRICING MODEL (CAPM)
    • Definition of Beta
    • Why the Discount Rate Developed by CAPM Is Applicable to Net Cash Flow
    • Steps to Implement the CAPM
      • Step 1--Risk-free Investment Rate.
      • Step 2--The Equity Risk Premium.
      • Step 3--Modify the Equity Risk Premium by Beta.
      • Illustration of the Industry-adjusted Equity Risk Premium per Guideline Companies Calculation.
      • Step 4--Risk Adjustment for Size in Relation to the Guideline Companies.
      • Step 5--Other Risk Factors in Relation to the Guideline Companies.
    • Summary of Capital Asset Pricing Model
    • Illustration of the Capital Asset Pricing Model for SJM Restaurants, Inc.
    • Discussion of the SJM Adjustment Factors in Exhibit 5-20
      • Some of the Components of the CAPM Method Have Been Previously Discussed.
      • Size-related Risk Adjustment.
      • Adjustments for Other Risk Factors.
  • 506 THE BUILD-UP METHOD FOR ESTIMATING THE DISCOUNT RATE AND THE RELATED CAP RATE
    • The Model
    • Discount Rate Is Applicable to After-tax Net Cash Flow.
    • Steps 1 and 2--Building up the Average Market Return
    • Step 3--Industry Risk Premium
    • Step 4--Risk Premium for Size
    • Step 5--The Specific Company Adjustment
      • Butler Pinkerton Model.
    • An Illustration of the Complete Build-up Computations for SJM Restaurants, Inc.
    • Discussion of the SJM Adjustment Factors in Exhibit 5-24
      • Some of the Components of the Build-up Method Have Been Previously Discussed.
      • Adjustments for Other Risk Factors.
  • 507 USING DUFF & PHELPS RISK PREMIUM REPORT DATA
    • Introduction to Duff & Phelps Studies
    • The Duff & Phelps Risk Premium Report Size Study Data
    • Using the Duff & Phelps Risk Premium Report Size Study in the Build-Up Method
    • Using the Duff & Phelps Risk Premium Report Size Study in the CAPM Method
    • Size Smaller Than the Smallest Size Premium Group
  • 508 CONVERTING A NET CASH FLOW DISCOUNT OR CAPITALIZATION RATE TO A RATE APPLICABLE TO SOME OTHER VARIABLE
  • 509 THE WEIGHTED AVERAGE COST OF CAPITAL (WACC)
  • 510 CHARACTERISTICS OF THE VALUES DETERMINED IN THIS CHAPTER
    • Minority versus Controlling Interests
      • Financial Information Adjusted Only for Normalization Factors Usually Relates to Minority Interests.
      • Estimating a Minority versus Control Value.
    • Marketability of the Company's Stock
    • Use of the Discounted and Capitalized Returns Method
  • APPENDIX 5A: Excerpt from Duff & Phelps, LLC Risk Premium Report 2008
  • APPENDIX 5B: Interest Rates: Money and Capital Markets 1998-2008
  • APPENDIX 5C: Subchapter S Corporation Valuation--A Simplified View
  • APPENDIX 5D: The ?Real' S Corp Debate: Impact of Embedded Tax Rates from Public Markets


CHAPTER 6: VALUATION METHODS BASED ON GUIDELINE COMPANY DATA

  • 600 INTRODUCTION
    • Terminology
      • Measures of Central Tendency or Dispersion.
    • Use of These Methods as a "Sanity Check" for the Results of Other Methods
    • Common Problems in the Use of Guideline Companies Methods
    • Resources Needed by the Valuation Consultant
    • The Importance of a Guideline Company's Stock Price
  • 601 OVERVIEW OF THE GUIDELINE METHODS VALUATION PROCESS
    • Comparison of this Work Program to the Capitalized Returns Work Program
    • Steps 1 through 3--Obtaining and Adjusting Financial Statements of the Company Being Valued
      • Obtaining Financial Information about the Company Being Valued.
      • Adjusting the Historical Financial Statements for GAAP Differences or Normalization Adjustments.
      • Recompute (or Compute) State and Federal Income Taxes.
    • Step 4--Identifying Guideline Data
      • What Is Potential Guideline Data?
      • Identifying Major Competitors.
      • Determining the Appropriate SIC/NAICS Codes.
      • Identification and Analysis of Guideline Data.
      • Must a Guideline Company Be Identical to the Company Being Valued?
      • Documentation of the Selection and Analysis of Guideline Data.
      • Illustrations of Guideline Company and Guideline Transaction Selections and Analysis.
    • Steps 5 and 6--Adjusting Financial Information (Including Computation of the Income Tax Provision) for Each Guideline Public Company and Guideline Transaction
      • Sources of Information about Potential Guideline Data.
      • Adjusting Financial Information of Each Guideline Company.
      • Pretax versus After-tax Adjustments.
      • Types of Adjustments That May Be Required.
      • Recomputing (or Computing) the State and Federal Income Taxes of Each Company.
      • Illustrations of Financial Information for the Guideline Methods.
    • Steps 7 and 8--Selecting the Appropriate Value Multiples
      • Determination of the Appropriate Stock Price.
      • Determination of the Measure of Operating Results for the Appropriate Time Period or Financial Position as of the Valuation Date.
      • Price/Earnings Multiple.
      • Price/Dividend Multiple.
      • Price/Revenues Multiple.
      • Price/Book Value Multiple.
      • Price/Net Asset Value Multiple.
      • Characteristics of Guideline Data When the P/NAV Method Is Used.
      • Market Value of Invested Capital (MVIC) Multiples.
      • Deciding How the Time Period Will Be Determined.
      • Operations for the Most Recent 12 Months (or Four Quarters).
      • Operations for the Most Recent Fiscal Year.
      • Projected Operations.
      • Average of Historical Operations.
    • Steps 9 through 12--Application of Guideline Methods
      • Computing Multiples Based on Adjusted Financial Information.
      • Determining the Appropriate Value Multiples.
      • Adjusting the Selected Value Multiple.
      • Documentation of Value Multiple Computations.
      • Illustrations of Value Multiple Calculations Using SJM Restaurants, Inc.
    • Steps 13 through 16--Applying Final Adjustments and "Sanity Checks"
      • Determining Which Values Should Be Accorded How Much Weight.
      • Performing "Sanity Checks"
      • Determining the Appropriate Value for Nonoperating Assets, Excess Assets, and Asset Shortages (If Required).
      • Adjusting the Estimated Value for Marketability Discounts, Control Premiums, or Minority Interest Discounts (If Necessary).
  • 602 THE GUIDELINE PUBLIC COMPANIES METHOD
    • Under What Circumstances Should the Valuation Consultant Consider Using the Guideline Public Companies Method?
      • Company Characteristics.
    • Using SIC/NAICS Codes to Identify Potential Guideline Public Companies
      • Securities and Exchange Commission's Website.
      • Standard & Poor's Register--Public Corporations.
      • Standard & Poor's Corporation Records.
      • On-line Databases.
    • Using Other Sources to Identify Potential Guideline Public Companies
    • Narrowing the List of Potential Guideline Public Companies
    • Obtaining Information about the Potential Guideline Public Companies
      • EDGAR.
    • Illustration of the Guideline Public Companies Method Using SJM Restaurants, Inc.
      • Guideline Public Companies Selection and Analysis--Step 4.
      • Description of the Four Guideline Public Companies.
      • Financial Information for the Guideline Public Companies--Steps 5 and 6.
      • Value Multiple Calculations--Steps 7 through 12.
      • Applying Final Adjustments and "Sanity Checks"--Steps 13 through 16.
  • 603 THE GUIDELINE TRANSACTION (MERGER AND ACQUISITION) METHOD
    • Sources of Transaction Data
      • Done Deals
      • BIZCOMPS
      • Pratt's Stats
      • Public Stats.
      • Mergerstat/BVR Control Premium Study
      • The IBA Market Database.
      • Financial Post Crosbie: Mergers & Acquisition in Canada.
      • ZEPHYR.
      • Mergerstat Review.
      • The Cogent Valuation M&A Database.
      • GF Data Resources.
      • Understanding the Transaction Databases.
    • Choosing a Multiple from the Database Results
    • Cautions of Using Guideline Transaction Data
      • Definition of Price.
      • Definition and Reliability of Earnings.
      • Reported Revenues.
      • Similarity of Guideline Companies.
      • Acceptable Number of Guideline Transactions.
      • Level of Reliance.
    • Illustration of Guideline Transaction Method Using SJM Restaurants, Inc.
      • Guideline Transaction Selection and Analysis--Step 4.
      • Financial Information for the Guideline Transaction Target Companies--Steps 5 and 6.
      • Value Multiple Calculations--Steps 7 through 12.
      • Applying Final Adjustments and "Sanity Checks"--Steps 13 through 16.
  • 604 MARKET VALUE OF INVESTED CAPITAL PROCEDURE
    • Using Invested Capital Techniques to Value Equity
  • 605 CHARACTERISTICS OF THE VALUES DETERMINED IN THIS CHAPTER
    • Minority versus Controlling Interests
      • Basing the Type of Value on the Guideline Company's Price.
      • Unadjusted Financial Information Usually Relates to Minority Interests.
      • Determining a Minority versus Control Value.
      • Marketability of the Company's Stock
      • Use of Valuation Methods That Are Based on Guideline Data
  • APPENDIX 6A: Case Study Information--Total Entertainment Restaurant Corporation
    • APPENDIX 6A-1: Total Entertainment Restaurant Corporation Consolidated Statements of Operations
    • APPENDIX 6A-2: Total Entertainment Restaurant Corporation Consolidated Statements of Operations--Percent of Total Operating Revenue
    • APPENDIX 6A-3: Total Entertainment Restaurant Corporation Consolidated Balance Sheets
    • APPENDIX 6A-4: Total Entertainment Restaurant Corporation Consolidated Balance Sheets--Percent of Assets
  • APPENDIX 6B: Case Study Information--J. Alexander's Corporation and Subsidiaries
    • APPENDIX 6B-1: J. Alexander's Corporation and Subsidiaries Consolidated Statements of Income
    • APPENDIX 6B-2: J. Alexander's Corporation and Subsidiaries Consolidated Statements of Income--Percent of Total Operating Revenue
    • APPENDIX 6B-3: J. Alexander's Corporation and Subsidiaries Consolidated Balance Sheets
    • APPENDIX 6B-4: J. Alexander's Corporation and Subsidiaries Consolidated Balance Sheets--Percent of Total Assets
  • APPENDIX 6C: Case Study Information--BUCA, Inc. and Subsidiaries
    • APPENDIX 6C-1: BUCA, Inc. and Subsidiaries Consolidated Statements of Operations
    • APPENDIX 6C-2: BUCA, Inc. and Subsidiaries Consolidated Statements of Operations--Percent of Total Operating Revenue
    • APPENDIX 6C-3: BUCA, Inc. and Subsidiaries Consolidated Balance Sheets
    • APPENDIX 6C-4: BUCA, Inc. and Subsidiaries Consolidated Balance Sheets--Percent of Total Assets
  • APPENDIX 6D: Case Study Information--Mexican Restaurants, Inc. and Subsidiaries
    • APPENDIX 6D-1: Mexican Restaurants, Inc. and Subsidiaries Consolidated Statements of Income
    • APPENDIX 6D-2: Mexican Restaurants, Inc. and Subsidiaries Consolidated Statements of Income--Percent of Total Operating Revenue
    • APPENDIX 6D-3: Mexican Restaurants, Inc. and Subsidiaries Consolidated Balance Sheets
    • APPENDIX 6D-4: Mexican Restaurants, Inc. and Subsidiaries Consolidated Balance Sheets--Percent of Total Assets


CHAPTER 7: UNDERLYING ASSETS, EXCESS EARNINGS, AND OTHER METHODS

  • 700 INTRODUCTION
  • 701 UNDERLYING ASSETS METHODS
    • What Are Underlying Assets Methods?
    • When Should Underlying Assets Methods Be Applied?
      • NAV Method.
      • LV Method.
      • Excess Earnings Method.
    • Engagement Considerations When an Underlying Assets Method Is Used
      • Deciding Whether an Asset Appraiser Is Needed.
      • Determining the Qualifications of an Asset Appraiser.
      • What If the Client Will Not Hire an Appraiser?
      • Defining the Premise of Value.
      • Determining Whether Special Procedures Are Required.
    • Reporting Considerations
  • 702 NET ASSET VALUE METHOD
    • Overview of the Method
    • Step 1--Obtain the Company's Balance Sheet
      • When a Tax Basis Balance Sheet May Be More Appropriate.
      • When the GAAP Basis Balance Sheet May Be More Appropriate.
    • Step 2--Adjusting the Balance Sheet for Omitted Assets and Liabilities or When the Balance Sheet Date and the Valuation Date Differ
      • Omitted Assets and Liabilities.
      • Intangible Assets and Contingent Liabilities.
    • Steps 3 and 4--Adjusting Assets and Liabilities to Appraised Value
    • Step 5--Make Income Tax Adjustments (If Appropriate)
      • Special Considerations If There Is a Known Buyer.
      • Disclose Tax Assumptions in the Valuation Report.
    • Step 6--Adjusting for Senior Equity Securities
    • Step 7--Perform "Sanity Checks" to Determine the Reasonableness of the Estimated Value
    • Step 8--Adjust for Applicable Discounts
    • Invested Capital versus Equity
    • Case Study
  • 703 LIQUIDATION VALUE METHOD
    • Overview of the Method
    • Steps 1 and 2--Obtain the Company's Balance Sheet and Adjust It (If Necessary)
    • Step 3--Determining the Approach to Liquidation
    • Step 4--Determine the Gross Proceeds from Liquidation
    • Step 5--Reduce Gross Proceeds for Direct and Indirect Expenses
    • Step 6--Add or Subtract Operating Profits or Losses during the Liquidation Period
    • Step 7--Subtract the Liquidation Values of Liabilities
    • Step 8--Add or Subtract Income Tax Provision or Benefit
    • Step 9--Subtract the Liquidation Preference Value of any Senior Equity Securities
    • Step 10--Discount the Net Proceeds to Present Value
    • Step 11--Determine the Need for Discounts
    • Adjustments for Invested Capital Valuations
    • Case Study
    • Using the LV Method in Going Concern Situations
  • 704 EXCESS EARNINGS METHOD
    • Conceptual Basis for the Method
    • Applying the Method
    • Step 1--Obtain the Company's Financial Statements and Make GAAP and Normalization Adjustments
    • Step 2--Determine the Value of the Company's Net Tangible Assets
    • Step 3--Determine a Reasonable Rate of Return on the Company's Net Tangible Assets
      • Building up a Market Rate with Financial Market Data.
      • Using Prevailing Industry Rates.
    • Step 5--Calculate Excess Earnings
    • Step 6--Determine an Excess Earnings Capitalization Rate
    • Steps 7 and 8--Capitalize the Company's Excess Earnings and Add This Amount to Its Net Tangible Assets
    • Step 9--Perform "Sanity Checks" to Determine the Reasonableness of the Estimated Value
    • Step 10--Determine an Appropriate Value for Excess Assets, Nonoperating Assets or Asset Shortages (If Necessary)
    • Step 11--Determine the Need for Minority Interest Discounts or Other Discounts
    • Case Study on the Excess Earnings Method
    • Variation on the Excess Earnings Method
    • Applying the Excess Earnings Method on an Invested Capital Basis
      • Rates of Return Using the Invested Capital Basis.
    • Cautions about Using the Excess Earnings Method
      • Limitations of the Method.
      • Common Errors in Applying the Excess Earnings Method.
  • 705 MULTIPLE OF DISCRETIONARY EARNINGS METHOD
    • Characteristics of the Method
    • Applying the Method
    • Step 1--Determine the Company's Normalized Pretax Earnings for an Appropriate Period
    • Step 2--Add the Owner's Total Compensation and Benefits
    • Step 3--Add Interest Expense and Any Noncash Charges
    • Step 4--Deduct Interest Income
    • Step 5--Determine an Appropriate Valuation Multiple
      • Basing the Multiple on Guideline Company Data.
      • Developing a Multiple Based on Business Risk Characteristics.
      • Stability of Historical Earnings.
      • Business and Industry Growth Prospects.
      • Type of Business.
      • Quality of Location and Facilities.
      • Stability and Skills of Employees.
      • Competition.
      • Diversification of Products, Services, and Geographic Markets.
      • Desirability and Marketability for Type of Business.
      • Depth of Management.
      • Availability of Capital and/or Terms of Sale.
      • Measuring the Risk Characteristics.
    • Step 6--Multiply Discretionary Earnings by the Factor in Step 5 to Determine the Value of the Company's Operating Assets
    • Step 7--Perform "Sanity Checks" to Determine the Reasonableness of the Value Determined in Step 6
    • Step 8--If Necessary, Adjust the Value Determined in Step 6 for Net Working Capital, Excess Assets, Nonoperating Assets, and Debt
    • Step 9--Determine if the Value Computed Should Be Adjusted for Minority Interest Discounts or Other Discounts
    • Limitations of the Multiple of Discretionary Earnings Method
    • Case Study
  • 706 RULES OF THUMB
    • Limitations of Rules of Thumb
  • 707 COMPANY SPECIFIC METHODS
    • Transactions in the Company's Stock
    • Enforceable Contracts
  • APPENDIX 7A: Revenue Ruling 68-609
  • APPENDIX 7B: Income Tax Considerations for the Net Asset Value and Liquidation Value Methods
  • APPENDIX 7C: The Problem with Rules of Thumb in the Valuation of Closely-held Entities
  • APPENDIX 7D: Value in Use


CHAPTER 8: WRAPPING UP THE ENGAGEMENT

  • 800 INTRODUCTION
    • Many Engagement Wrap-up Procedures Should Be Performed by Both Valuation Consultants and Analysts in Industry
    • What Specific Procedures Should Be Performed during This Phase of an Engagement?
  • 801 SELECTING A SINGLE VALUE FROM A RANGE OF VALUES
    • Weighting of Values Determined Using Two or More Methods
    • Mathematical versus Subjective Weightings
      • Description of the Mathematical Weighting Technique.
      • Description of the Subjective Weighting Technique.
      • What Does Revenue Ruling 59-60 Say about the Mathematical Weighting Technique?
      • Does This Imply That Mathematical Weights Should Not Be Used?
      • Special Disclosures That Should Be Made When the Mathematical Weighting Technique Is Used.
      • Which Technique Should Be Used by Valuation Consultants?
    • Factors That Should Be Considered in Determining the Relative Weightings of Valuation Methods
      • The Nature of the Business and Its Assets.
      • The Purpose of the Valuation and the Definition of Value.
      • The Premise or Premises of Value and Ownership Characteristics.
      • Quantity and Quality of Available Data.
      • Summary of Factors to Consider in Weighting the Results of More Than One Valuation Method.
    • Illustration of Weighting Using SJM Restaurants, Inc.
      • Discounted Net Cash Flow Method.
      • Guideline Companies Valuation Methods.
      • Excess Earnings Valuation Method.
      • Arriving at a Single Value Estimate.
  • 802 APPLYING "SANITY CHECKS" TO THE ESTIMATES OF VALUE
    • Several Types of Sanity Checks Might Be Used
      • Rechecking the Logic and Math.
      • Comparing the Company Being Valued to Other Companies.
      • Testing the Reasonableness of the Value from a Buyer's Perspective.
      • Computing the Payback Period.
      • Illustration of the Payback Period Computation.
      • Arriving at a Conclusion about a Payback Period.
      • Testing the Reasonableness of a Value Estimate from an Adversary Perspective.
  • 803 APPLICATION OF PREMIUMS AND/OR DISCOUNTS
    • Types of Premiums and Discounts
    • Control Premiums and Minority Interest Discounts
      • Controlling versus Minority Interests.
      • Comparison of Control Premium to Minority Interest Discount.
      • Distinguishing between a Controlling and a Minority Interest.
      • Factors Affecting the Degree of Control That Can Be Exercised.
      • Cumulative versus Noncumulative Voting.
      • Contractual Restrictions.
      • Effects of Regulation, Including State Statutes.
      • Effects of Distribution of Ownership.
      • Summary of Factors Affecting Degree of Control.
      • Quantifying Minority Interest Discounts and Control Premiums.
      • Determining Whether a Control Premium or Minority Interest Discount Is Needed.
      • Determining the Level of a Control Premium or a Minority Interest Discount.
    • Discounts for Lack of Marketability
      • Distinction between Minority Interest Discount and Discount for Lack of Marketability.
      • Need for Such Discounts in Valuing Closely Held Companies.
      • Factors Affecting the Required Level of a Discount for Lack of Marketability.
    • Studies Designed to Determine the Required Level of a Discount for Lack of Marketability
      • Two Types of Empirical Studies.
      • Restricted ("Letter") Stock Studies.
      • Relationship between Size of Block and Discount for Lack of Marketability.
      • Using Restricted Stock Studies to Estimate a Discount.
      • Studies of Transactions in Closely Held Stocks Prior to IPOs.
      • Acceptance of the Studies by the Courts.
      • Cost of Flotation.
      • Quantitative Marketability Discount Model (QMDM).
      • Selecting a Discount for Lack of Marketability.
      • Recognition by IRS and the Courts of Discount for Lack of Marketability.
    • Discount for Lack of Voting Rights
      • Swing Vote Premium.
    • Other Discounts
    • Business Valuation Discounts and Premia Databases
    • Applying Discounts and Premiums to SJM Restaurants, Inc.
      • Discounted Net Cash Flow Method.
      • Guideline Public Companies Method.
      • Guideline Transaction Method.
      • Excess Earnings Method.
      • Determining the Value of a Specific Ownership Interest.
  • 804 OBTAINING A REPRESENTATION LETTER
    • Reasons for Obtaining a Representation Letter
    • What If a Representation Letter Cannot Be Obtained?
    • Illustrative Representation Letter
  • 805 WORKPAPER DOCUMENTATION, PERFORMING THE APPROPRIATE WORKPAPER REVIEWS, AND RESOLVING PROFESSIONAL DISPUTES
    • Workpaper Documentation
    • Engagement Review
      • Performing the Engagement Review.
      • Engagement Review Checklist.
    • Resolving Professional Disputes
  • 806 PERFORMING ADDITIONAL ADMINISTRATIVE MATTERS DURING THE WRAP-UP PHASE
  • 807 PROCEDURES FOR INDUSTRY ACCOUNTANTS AND ANALYSTS
    • Some Wrap-up Procedures Are Different from Those Previously Discussed
      • Representation Letters.
      • Reviews of Workpapers and Report Drafts.
      • Discussing the Valuation Results with the Appropriate Level of Management.
      • Summary of Engagement Wrap-up Procedures.
  • 808 OPPORTUNITIES TO PROVIDE ADDITIONAL SERVICES
    • Divorce-related Services
    • Litigation Support Services
    • Estate Planning Services
    • Services Related to Buying and Selling a Business
  • APPENDIX 8A: Control Premiums and Minority Discounts: The Need for Specific Economic Analysis from Shannon Pratt's Business Valuation Update
  • APPENDIX 8B: Quantitative Marketability Discount Model: Discussion and Illustrative Case Study Example


CHAPTER 9: VALUATION REPORTS

  • 900 INTRODUCTION
  • 901 GENERAL GUIDELINES FOR ALL REPORTS
    • Professional Requirements
    • AICPA Standards
      • Statement on Standards for Valuation Services.
      • Standards for Consulting Services.
    • ASA Guidelines
    • The Appraisal Foundation Standards
    • ASA Business Valuation Committee Standards
    • IBA Business Appraisal Standards
    • NACVA Professional Standards
    • Other Guidelines
      • IRS Guidelines.
    • Applying Authoritative Guidance to Litigation Services and Expert Testimony
      • Do the AICPA Standards Apply to Litigation Service Engagements?
      • ASA Requirements.
      • The Appraisal Foundation Requirements.
      • IBA Requirements.
      • Federal Rules of Civil Procedure.
      • Other Considerations for Litigation Services Engagements.
  • 902 FINANCIAL INFORMATION IN VALUATION REPORTS
    • General Considerations for Presenting Financial Information
      • Location of the Financial Information.
      • Labeling the Financial Information.
    • Presenting Historical Financial Information
      • What Financial Information Should Be Presented?
      • How Many Years Should Be Presented?
      • How Much Detail Should Be Presented?
    • Presenting Normalized Financial Data and Adjustments
    • Presenting Prospective Financial Information
    • CPA's Reporting Responsibilities for Historical Financial Information in Valuation Reports
      • Source of the Financial Information.
      • Were Financial Statements Submitted?
      • Intended Use of the Valuation Report.
      • Valuation Reports Used for Litigation Services.
      • Valuation Reports for General Third-party Use.
      • Valuation Reports for Restricted Use.
      • What Constitutes Restricted Use?
    • CPA's Reporting Responsibilities for Prospective Financial Information in Valuation Reports
    • CPA's Reporting Responsibilities for Normalized Financial Statements
    • Non-CPA Valuation Consultants' Responsibilities for Financial Information Presented in Valuation Reports
    • Use of Financial Statements Accompanied by Another CPA's Report
  • 903 DETAILED, WRITTEN REPORTS
    • Report Contents
    • Introduction
    • Company Background and History
    • Economic and Industry Data
    • Financial Analysis of the Company
      • Financial Statement Data.
    • Search for Guideline Companies
    • Valuation Methods
    • Valuation Analysis/Calculations
    • Valuation Conclusion
    • Addenda
      • Statement of Independence and Objectivity.
      • List of the Consultant's Qualifications.
      • Assumptions and Limiting Conditions.
      • Description of Data Sources.
      • Other Addenda Material.
    • Signatures
  • 904 SUMMARY REPORTS
    • Authoritative Guidance
      • When Are Summary Reports Appropriate?
      • When Are Summary Reports Not Appropriate?
      • Contents.
  • 905 CALCULATION REPORTS FOR CPA VALUATION CONSULTANTS
    • Authoritative Guidance
  • 906 ORAL REPORTS
  • 907 REPORTING BY INDUSTRY ACCOUNTANTS/ANALYSTS
    • How Do Internal Reports Differ from Consultants' Reports?
    • Contents of Internal Reports
      • Introduction.
      • Company, Economic, and Industry Data.
      • Financial Analysis of the Company.
      • Valuation Methods.
      • Valuation Analysis/Calculations.
      • Valuation Conclusion.
      • Other Comments.
      • Addenda.
  • 908 WRITING GOOD VALUATION REPORTS
    • What Makes a Report Well-written?
    • Common Errors in Valuation Reports
      • Failure to Follow the Standard of Value.
      • Inconsistencies.
      • Arithmetic Errors.
      • Insufficient Support.
      • Overreliance on Rules of Thumb.
      • Inadequate Data.
      • Failure to Consider Guideline Companies Methods.
  • 909 UPDATING VALUATION REPORTS
    • Valuation Considerations
    • Reporting
  • APPENDIX 9A: Sample Detailed Valuation Report--SJM Restaurants, Inc.
  • APPENDIX 9B: Sample Summary Report--SJM Restaurants, Inc.
  • APPENDIX 9C: Example Worksheets from PPC's Business Valuation Specialistr


CHAPTER 10: ESTATE AND GIFT TAX VALUATIONS

  • 1000 INTRODUCTION
    • The Valuation Consultant's Role
      • Filing Estate or Gift Tax Returns.
      • Tax Dispute Resolution.
    • Burden of Proof
      • Estate Planning.
    • Developing an Estate and Gift Tax Valuation Practice
  • 1001 OVERVIEW OF ESTATE AND GIFT TAXATION
    • Determining the Taxable Estate
      • Total Gross Estate (Line 1).
      • Total Allowable Deductions (Line 2).
      • Taxable Estate (Line 3c).
      • Adjusted Taxable Gifts (Line 4).
    • Calculating the Estate Tax
      • Tentative Tax on the Amount on Line 5 (Line 6).
      • Total Gift Tax Payable with Respect to Gifts Made by the Decedent after December 31, 1976 (Line 7).
      • Applicable Credit Amount (Line 11).
      • Net Estate Tax (Line 16).
      • Sample Tax Calculation.
    • Filing Form 706
      • Due Date.
    • Determining Taxable Gifts
      • Gifts Defined.
      • Gift Splitting.
    • Filing Form 709
      • Disclosing Discounts.
      • Due Date.
    • Recipient's Tax Basis of a Bequest or a Gift
      • Relationship of Fair Market Value to the Donor's Tax Basis.
      • Calculating a Recipient's Tax Basis.
      • Considerations When Fair Market Value Exceeds the Donor's Tax Basis.
      • Avoid Gifting Property When Fair Market Value Is Less Than the Donor's Tax Basis.
    • State Inheritance Taxes
    • Penalties for Undervaluation on Estate and Gift Tax Returns
      • Penalties against Taxpayers.
      • Penalties against Appraisers.
      • Penalties against Preparers.
  • 1002 VALUATION OF BUSINESS INTERESTS INCLUDED IN ESTATE OR GIFT TAX RETURNS
    • Definition of Value
      • Statutory Definition.
      • Cash or Cash Equivalent Price.
      • Willing Buyers and Sellers.
      • Prevailing Economic and Market Conditions.
      • Valuation of Unlisted Securities.
      • Guideline Company Transactions.
    • Valuation Date
      • Valuation Date for Estates.
      • Valuation Date for Gifts.
    • IRS Rulings and Regulations
      • The Hierarchy of Tax Rules.
      • Revenue Ruling 59-60.
      • Revenue Ruling 65-193.
      • Revenue Ruling 68-609.
      • Revenue Ruling 77-287.
      • Revenue Ruling 80-213.
      • Revenue Ruling 83-120.
      • Revenue Ruling 93-12.
    • Premiums and Discounts
      • Control Premiums and Minority Interest Discounts.
      • Controlling Interests.
      • Minority Interests.
      • Swing Blocks.
      • Discounts for Lack of Marketability.
      • Discount When the Decedent Was a Key Person.
      • Blockage Discounts.
      • Environmental Liability Discount.
      • Fractional Interests Discounts.
      • Disclosing Discounts.
    • Company Specific Methods
      • Previous Sales of Shares in a Closely Held Business.
      • Buy-sell Agreements.
      • Liquidation Value.
    • Gifts with Restrictions and Adjustment Clauses
      • Restrictions.
      • Valuation Adjustment Clauses.
    • Case Law
      • Estate of Jung.
      • Estate of Fleming.
      • Estate of Davis.
      • Eisenberg v. Commissioner.
      • Estate of Simplot.
  • 1003 ESTATE FREEZES
    • Overview
    • Estate Freeze Law and Regulations
    • Valuation Considerations
    • Valuing Preferred Stock
      • IRC Chapter 14 Departs from Strict Fair Market Value Standard.
      • Dividends.
      • Revenue Ruling 83-120.
      • Identify Publicly Traded Preferred Stock Issues.
      • Compare the Company Being Valued to the Identified Publicly Traded Preferred Stock Issues.
      • Determine the Appropriate Dividend Yield and Dividend and Interest Coverage Ratio for the Company Being Valued.
    • An Illustration of Valuing Preferred Stock in an Estate Freeze Recapitalization
    • Valuing a Common Stock Interest
      • Minimum Value.
    • Reverse Freeze Partnerships
  • 1004 RECENT GIFT AND ESTATE COURT DECISIONS
    • Year 2008 Court Decisions
      • Premise of Value.
    • Court Decisions from Prior Years
      • Valuation Methods.
      • Valuation Discounts.
      • No Expert Valuation.
      • Valuation Premiums.
      • Valuation Date.
      • Trapped-in Capital Gains.
      • Tax Affecting.
      • Weighting of Approaches and Methods.
      • Evidence.
      • Buy-sell Agreements.
      • Burden of Proof.
      • Other Topics.
  • 1005 SUMMARY
    • Possibility of Challenge
    • Preference for Guideline Companies as the Basis for Value
      • Selecting a Valuation Method.
    • Transactions between Family Members
  • APPENDIX 10A: "IRS Publishes Final Regulations for ?Adequate Disclosure' of Gifts," from Shannon Pratt's Business Valuation Update
  • APPENDIX 10B: "Special Report: IRS Adequate Disclosure Final Regulations Respond to Extensive Comments"


CHAPTER 11: VALUING PROFESSIONAL PRACTICES

  • 1100 INTRODUCTION
    • Reasons for Practice Valuation
      • Purchase or Sale of Entire Practice.
      • Purchase or Sale of Partial Interest.
      • Divorce.
    • How Professional Practices Differ from Other Businesses
      • Professional Licenses.
      • Reliance on the Professional.
      • Nature of Services Performed.
      • Nature of the Client Base.
      • Typical Accounting Policies.
      • Limited Pool of Buyers.
      • Value Heavily Dependent on Intangibles.
    • How This Chapter Is Organized
  • 1101 DATA GATHERING
    • HIPAA Challenges
    • Financial Information
      • Departures from GAAP.
    • Legal Documents
    • Operational Data
    • Service Mix
      • Degree of Specialization.
      • Diversification.
      • Proprietary Products or Information.
      • Accuracy of Coding Services in a Medical Practice.
    • Client Base
      • Client Retention.
      • Analyzing Client Retention.
      • Transition.
      • Special Retention Factors.
      • Professional Referrals versus Other Client Sources.
      • Contractual Relationships.
    • Operations
      • Technology Trends.
    • Payer Mix
    • Revenue Producing Staff
      • Dental Practices.
      • Medical Practices.
      • Accounting Practices.
    • Historical Allocations of Compensation among the Owners of the Practice
    • Economic, Industry, and Market Data
      • Location and Demographics.
      • Healthcare Markets Are Highly Localized.
      • Location and Demographics Are Not Always Critical.
      • Industry Information.
      • Industry Data.
      • Competition.
      • Competition Is Not Always from within the Profession.
    • When the Buyer Is Known
      • Compatibility of Operations.
      • Key Employees.
      • Owner's Work Habits.
  • 1102 ADJUSTMENTS TO FINANCIAL INFORMATION
    • Cash versus Accrual Accounting
    • Reasonable Compensation
    • Leaseholds
    • Owner Receivables/Payables
    • Nonrecurring/Nonoperating Items
      • Cash.
      • Receivables.
      • Work in Progress.
      • Contingent Work in Progress.
      • Supplies.
      • Prepayments.
      • Furniture, Fixtures, and Leasehold Improvements.
    • Accrued Expenses and Deferred Revenues
    • Contingencies
    • When Historical Accrual Information Is Not Available
    • Converting from Cash to Accrual--An Illustration
  • 1103 VALUATION METHODS
    • Discounted and Capitalized Returns
      • Discounted Future Returns.
      • Capitalized Returns.
    • Guideline Company Methods
      • Sources of Transaction Data.
      • Criteria for Comparability.
      • Value Multiples from Guideline Transactions.
      • What Does the Estimated Value Represent?
      • Consider Transaction Terms.
    • Net Asset Value, Excess Earnings, and Other Methods
      • Intangible Assets.
      • Net Asset Value Method.
      • Excess Earnings Method.
      • Multiple of Discretionary Earnings Method.
      • Rules of Thumb.
      • Earnouts.
      • Past Transactions.
      • Buy-sell Agreements.
  • 1104 PROFESSIONAL VERSUS PRACTICE GOODWILL
    • Professional Goodwill
      • Professional Licenses.
    • Practice Goodwill
      • Noncompete Agreements.
    • Treatment of Professional and Practice Goodwill in Divorce Valuations
    • Treatment of Professional Goodwill in Partnership Dissolution Valuations
  • 1105 WRAPPING UP THE ENGAGEMENT
    • Weighting of Valuation Methods
      • Nature of the Business and Its Assets.
      • Purpose of the Valuation and Definition of Value.
      • The Premise or Premises of Value.
      • Quantity and Quality of Data Available.
    • "Sanity Checks"
    • Premiums and/or Discounts
      • Control Premiums.
      • Minority Interest Discounts.
      • The Effect of Buy-sell Agreements.
      • Discounts for Lack of Marketability.
      • Law Practices and Discounts for Lack of Marketability.
  • 1106 RECENT PROFESSIONAL PRACTICE COURT DECISIONS
    • Year 2008 Court Decisions
      • Professional Goodwill v. Practice Goodwill.
      • Partnership/Shareholder Agreements and Contingencies.
      • No Expert Valuation.
    • Court Decisions from Previous Years
      • Valuation Discounts.
      • Goodwill.
      • Professional (or Personal) Goodwill versus Practice Goodwill.
      • Shareholder and Buy-sell Agreements.
      • Reasonable Compensation.
      • Normalization Adjustments.
      • No Expert Valuation.
      • Tax Consequences.
      • Valuation Methods.
      • Evidence.
      • Noncompete Agreements.
      • Other Topics.
  • 1107 SUMMARY
  • APPENDIX 11A: Selected Professional Practice Valuation Bibliography
  • APPENDIX 11B: Internet Websites for Healthcare Research
  • APPENDIX 11C: Factors to Consider in Valuing Health Care Practices
  • APPENDIX 11D: Glossary of Health Care Terms
  • APPENDIX 11E: Medical Privacy--National Standards to Protect the Privacy of Personal Health Information


CHAPTER 12: VALUATIONS FOR DIVORCE ENGAGEMENTS

  • 1200 INTRODUCTION
    • Participants in a Divorce Case
    • Challenges of Divorce Engagements
      • The Importance of Objectivity.
      • Different Earnings Streams and Double Dipping.
      • Choosing Valuation Methods.
  • 1201 MARITAL AND SEPARATE PROPERTY
    • Community Property versus Equitable Distribution States
      • Community Property.
      • Equitable Distribution.
    • Distinguishing between Marital and Separate Property
      • What Is Marital Property?
      • What Is Separate Property?
    • Special Issues Regarding Separate Property
      • Property Acquired in Exchange for Separate Property.
      • The Increase in Value of Separate Property.
      • Commingled Property.
      • Transmuted Property.
    • Earnings from Separate Property
    • The Consultant's Role
      • Caution--Consult with the Client's Attorney.
  • 1202 STANDARDS OF VALUE AND VALUATION DATES
    • Defining the Standard of Value
    • Valuation Dates in Marital Dissolution Matters
      • Marriage Date.
      • Date of Gift or Inheritance.
      • Date of Separation.
      • Date the Lawsuit Was Filed.
      • Date Stipulated to by the Parties.
      • Date of Trial.
      • Date Specified by the Court.
  • 1203 PRE-ENGAGEMENT AND PLANNING PHASE
    • Reputation of Potential Client's Attorney
    • Availability of Needed Information
      • Problems Often Encountered in Obtaining Needed Records and Documents.
    • Anticipated Deadlines
    • Fee and Collection Issues
      • Responsible Party.
      • Retainers and Collections.
      • Executing a Security Agreement to Ensure Payment.
  • 1204 DATA GATHERING AND ANALYSIS PHASE
    • The Discovery Phase
    • Document Request List
      • Protective Orders and Confidentiality Agreements.
    • Facility Visits and Interviews
    • Interrogatories and Depositions
  • 1205 GOODWILL ISSUES
    • Celebrity Goodwill
    • Enhanced Earnings Concepts
    • Noncompete Agreements
  • 1206 REPORTING AND WRAP-UP
    • Representation Letters
    • Updating Valuation Reports
    • Expert Witness Testimony
  • 1207 RECENT DIVORCE CASE DECISIONS
    • Year 2008 Court Decisions
      • Discounts for Lack of Marketability and Lack of Control, Standard of Value, and Evidence.
      • Goodwill.
      • Appreciated Value.
    • Prior Year Court Decisions
      • Valuation Discounts.
      • Goodwill.
      • Valuation Methods.
      • No Expert Valuation.
      • Non-compete Agreements.
      • Standard of Value.
      • Reliability of Data.
      • Tax Consequences.
      • Evidence.
      • Determination of Marital Property.
      • Valuation Date.
      • Double Dipping.
      • Shareholder and Buy-sell Agreements.
      • Other Topics.
  • APPENDIX 12A: State-by-state Property Division Information


CHAPTER 13: LITIGATION SUPPORT SERVICES

  • 1300 INTRODUCTION
    • Consultant's Role in Litigation Support Services
      • Expert Consultant's Work-product Privilege.
      • Retaining and Compensating the Expert.
    • Types of Litigation Support Engagements
    • Independence Considerations for Litigation Services
    • Overview of Chapter Contents
  • 1301 OVERVIEW OF THE LITIGATION PROCESS
    • Investigation and Pleadings
    • Discovery
      • Requests for Production of Documents.
      • Interrogatories.
      • Requests for Admissions.
      • Subpoenas.
      • Depositions.
      • Expert's Role in Depositions.
      • Site Interviews and Visits.
    • Motion Practice and Negotiation
      • Motion for Summary Judgment.
      • Motion in Limine.
      • Daubert Challenge.
      • General Electric v. Joiner.
      • Kumho Tire.
      • Impact of a Daubert Challenge.
      • Defending Methodology from a Daubert Challenge.
      • Settlement Negotiations.
    • Trial and Appeal
  • 1302 PREPARING FOR EXPERT WITNESS TESTIMONY
    • Understanding Significant Aspects of the Case
      • When the Expert's Testimony Will Hurt the Client's Case.
    • Documenting Support for Opinions
      • Reporting When the Valuation Consultant Serves as an Expert Witness.
    • Possessing Good Witness Behavioral Skills
      • Communication Skills.
      • Recalling Pertinent Facts.
      • Thinking under Pressure.
      • Concentration and Endurance.
  • 1303 GENERAL GUIDELINES FOR PRESENTING EXPERT WITNESS TESTIMONY
    • Opportunities to Testify
    • Answering Questions
      • Tell the Truth.
      • Do Not Guess.
      • Using Notes.
      • Do Not Memorize.
      • Prepare for Testimony.
      • Listen.
      • Don't be Argumentative--Know Which Truths to Defend.
    • Advocacy
      • Answering a Judge's Questions.
    • Witness Behavior
      • Dress Conservatively.
      • Videotaped Depositions.
      • Be on Time.
      • Behavior When Not Testifying.
      • Contact with Jurors.
  • 1304 PRESENTING DEPOSITION TESTIMONY
    • Introduction
    • Preparing for Deposition Testimony
    • Providing Deposition Testimony
      • Objection Raised by the Client's Attorney.
      • Answering Questions at Depositions.
      • Questions from the Client's Attorney.
  • 1305 DIRECT EXAMINATION TESTIMONY
    • Expert's Qualifications
      • Is the Expert Qualified to Provide that Help?
      • Preparing an Effective Curriculum Vitae.
      • Opposing Attorney's Efforts to Disqualify the Expert Witness.
      • Weight Given to Testimony.
      • Relevance of Industry Experience.
      • Evidence about an Expert's Character.
    • Scope of Assignment
    • Materials Reviewed
    • Methods Used and Conclusions Reached
    • Presentation Style
      • Use of Visual Aids.
  • 1306 CROSS-EXAMINATION TESTIMONY
    • Introduction
    • The Witness's Conduct
      • Where to Look.
      • Taking the Initiative.
    • Presentation Style
      • Responding to Questions.
      • Avoid Arguing with the Attorney.
      • Repetitive or Irrelevant Questions.
      • Unnecessary Words.
      • Hypothetical Questions.
      • Didn't You Say Something Different at Your Deposition?
      • Dealing with Defensiveness.
      • Learning to Recognize Difficult Questions.
    • The Attorney's Conduct
      • Approaching the Witness.
      • The Shouting Attorney.
  • 1307 REDIRECT TESTIMONY
  • 1308 RECROSS TESTIMONY
  • 1309 REBUTTAL
  • 1310 RULES OF EVIDENCE
    • Background
    • Overview of the Rules
    • Relevancy of Evidence
      • Rule 401--Definition of Relevant Evidence.
      • Rule 402--Relevant Evidence Generally Admissible; Irrelevant Evidence Inadmissible.
      • Rule 403--Exclusion of Relevant Evidence on Grounds of Prejudice, Confusion, or Waste of Time.
    • Fact Witnesses
      • Rule 615--Exclusion of Witnesses.
    • Expert Testimony
      • Rule 701--Opinion Testimony by Lay Witnesses.
      • Rule 702--Testimony by Experts.
      • Rule 703--Bases of Opinion Testimony by Experts.
      • Rule 704--Opinion on Ultimate Issue.
      • Rule 705--Disclosure of Facts or Data Underlying Expert Opinion.
      • Rule 706--Court-appointed Experts.
    • Hearsay
      • Rule 803--Hearsay Exceptions; Availability of Declarant Immaterial.
    • Use of Originals
      • Rule 1001--Definitions.
      • Rule 1002--Requirement of Original.
      • Rule 1003--Admissibility of Duplicates.
      • Rule 1004--Admissibility of Other Evidence of Contents.
      • Rule 1005--Public Records.
      • Rule 1006--Summaries.
      • Rule 1007--Testimony or Written Admission of Party.
      • Rule 1008--Functions of Court and Jury.
  • 1311 RULES OF CIVIL PROCEDURE THAT APPLY TO EXPERT WITNESSES TESTIFYING IN CIVIL CASES
    • Depositions and Discovery
      • Rule 26--General Provisions Governing Discovery; Duty of Disclosure.
      • Written Reports.
      • Information Considered.
      • Supplementing the Written Report.
      • Publications.
      • List of Other Cases.
      • Are Written Reports Always Required?
      • Deposing the Expert.
      • Electronic Documents.
    • Depositions
      • Rule 30--Depositions upon Oral Examination.
    • Interrogatories
      • Rule 33--Interrogatories to Parties.
    • Requests for Document Production
      • Rule 34--Production of Documents and Things and Entry upon Land for Inspection and Other Purposes.
    • Sanctions for Nonproduction
      • Rule 37--Failure to Make Disclosure or Cooperate in Discovery; Sanctions.
  • 1312 FILING BRIEFS
  • 1313 ADMINISTRATIVE MATTERS
    • Characteristics of Litigation Support That Affect Administration
      • Time Schedules.
      • Testimony by Individuals.
      • Professional Standards.
    • Engagement Letters
    • Billing Arrangements
      • Retainers and Collection.
      • Executing a Security Agreement to Ensure Payment.
    • File Retention
    • Professional Liability When Performing Litigation Services
      • Background.
      • Not Understanding the Rules of Evidence and Rules of Civil Procedure.
  • 1314 ALTERNATIVE DISPUTE RESOLUTION AND NEUTRAL VALUATION
    • The Alternative Dispute Resolution Act of 1998
    • Uniform Mediation Act
    • Model Mediator Standards
    • Arbitration Legislation
    • Mediation
      • Identifying Major Issues to Be Resolved.
      • Determining Ways to Resolve the Issues.
      • Negotiating a Settlement.
      • Selecting a Mediator.
      • Hiring a Mediator.
      • Compensation.
    • Arbitration
      • The Arbitration Hearing.
      • Arbitration Characteristics of Particular Interest to an Expert.
      • Selecting an Arbitrator.
    • Combined Mediation/Arbitration
    • Neutral Valuation


CHAPTER 14: FAMILY LIMITED PARTNERSHIPS

  • 1400 OVERVIEW
    • Introduction
    • Advantages of FLPs
    • Disadvantages of FLPs
    • IRS Attack on Family Limited Partnerships
      • Reason for Formation.
      • Disclosure of Discounts on IRS Form 709.
  • 1401 CONSULTANT'S ROLE IN THE FORMATION OF A FAMILY LIMITED PARTNERSHIP
    • Consultant's Role
    • Determining the State in Which to Register
    • Assisting in Structuring the Partnership Agreement
      • Term or Life of the Entity.
      • Ownership and Capitalization of the Entity.
      • Nature of Management Rights.
      • Extent of Voting and Other Rights.
      • Restrictions on Transferring Units.
      • Assignee Interest.
      • Methods to Allocate Income and Loss.
      • Cash Distribution Requirements.
      • Withdrawal Rights.
      • Business Purpose of the Partnership.
      • Caution about General Partner's Control.
    • Selecting the Assets to Be Contributed to the Partnership
      • Caution Regarding Stock in a Privately-held Company.
      • Caution Regarding Marketable Securities.
      • Assets Inappropriate for a Family Limited Partnership.
    • Other Formation Considerations Due to IRC Sec. 2036(a)
      • IRC Sec. 2036(a)(1).
      • IRC Sec. 2036(a)(2).
      • Defense against IRC Sec. 2036.
  • 1402 OVERVIEW OF VALUATION METHODOLOGY
    • Controlling or Noncontrolling Interest
    • Fair Market Value
    • Valuation Approaches
      • Income Approach.
      • Market Approach.
      • Asset Based Approach.
    • Summary of Valuation Methodology
    • IRS Scrutiny
      • Restrictions in the Partnership Agreement.
  • 1403 VALUATION PROCEDURES
    • Information Gathering
    • Determining Net Asset Value
    • Income Approach Overview
      • Developing a Reasonable Rate of Return.
      • Marketable Securities.
      • Real Estate.
      • Combination of Assets.
      • Risk Premium.
      • Forecasting Income and Expenses.
      • Calculating a Value.
    • Market Approach Overview
      • Selecting Comparable Entities for Marketable Securities.
      • Selecting Comparable Entities for Real Estate.
      • Understanding Market Data.
    • Resulting Indication of Value
  • 1404 FLP VALUATION EXAMPLES
    • FLP Owning Marketable Securities
      • Income Approach--MS Partnership.
      • Forecasting Future Revenues and Expenses.
      • Calculating a Value.
      • Alternative Value Assuming Liquidation Horizon.
      • Market Approach--MS Partnership.
      • Reconciliation.
    • FLP Owning Income Producing Real Estate
      • Income Approach--RIPE Partnership.
      • Forecasting Future Revenues and Expenses.
      • Calculating a Value.
      • Market Approach--RIPE Partnership.
      • Reconciliation.
    • FLP Owning Nonincome Producing Real Estate
      • Income Approach--NPRE Partnership.
      • Forecasting Future Revenues and Expenses.
      • Calculating a Value.
      • Market Approach--NPRE Partnership.
      • Reconciliation.
  • 1405 DISCOUNT FOR LACK OF MARKETABILITY
    • Overview
    • Duration of Holding Period--Bonds
    • Illiquidity Risk--REITs v. Publicly Held Limited Partnerships
    • Restricted Stocks
    • Summary
  • 1406 REPORTING
    • Content
    • Frequency of Updating Reports
  • 1407 IRC CHAPTER 14 CONSIDERATIONS
    • Background
    • IRC Chapter 14 Provisions
      • Lapsing Rights.
      • Liquidation Rights.
      • Comparability Requirement.
      • Enforceability.
      • Transfer Rules.
      • State Law Exception.
  • 1408 RECENT FAMILY LIMITED PARTNERSHIP COURT CASES
    • Summary
    • Year 2008 Court Decisions
      • Discounts for Lack of Marketability and Lack of Control, Partnership Restrictions, Assignee Interest vs. Partnership Interest, and Indirect Gifts.
      • Business Purpose and Retained Control.
    • Court Decisions from Prior Years
      • Discounts for Lack of Marketability and Lack of Control.
      • Retained Control.
      • Partnership Issues.
      • Assignee Interest vs. Partnership Interest.
      • Improper Methodology.
      • Business Purpose.
  • APPENDIX 14A: Sources of External Data Related to Family Limited Partnerships
  • APPENDIX 14B: IRS Examination of an FLP


CHAPTER 15: FAIR VALUE UNDER SHAREHOLDER DISSENT AND OPPRESSION ACTIONS

  • 1500 INTRODUCTION
  • 1501 WHAT ARE SHAREHOLDER DISSENT AND MINORITY OPPRESSION ACTIONS?
    • Shareholder Dissent Actions
      • Triggering Events.
      • Initiating Dissenters' Rights.
      • Caution.
    • Minority Oppression Actions
      • Who Is a Minority Shareholder?
      • Remedies to the Oppressed Shareholder.
  • 1502 STANDARD OF FAIR VALUE
    • Definition of Fair Value
      • Fair Value versus Fair Market Value.
    • "Excluding Any Appreciation or Depreciation in Anticipation of the Corporate Action."
    • Application of Discounts and/or Premiums
      • Caution.
      • Control Premiums.
    • The "Delaware Block Method" Approach to Fair Value
      • Background.
  • 1503 VALUATION DATE
    • The Complaint
  • 1504 PROCEDURAL FAIRNESS AND THE ROLE OF EXPERTS
    • Opportunities for Valuation Consultants
  • 1505 RECENT SHAREHOLDER DISSENT AND OPPRESSION COURT DECISIONS
    • Year 2008 Court Decisions
      • Discounts for Lack of Marketability and Lack of Control.
      • Trapped-in Capital Gains.
      • Standard of Value, Valuation Date, and Evidence.
      • Premise of Value.
      • Projected Performance and No Expert Valuation.
    • Court Decisions from Prior Years
      • Valuation Discounts.
      • Trapped-in Capital Gains.
      • Standard of Value.
      • Premise of Value.
      • Evidence.
      • Subsequent Events.
      • Control Premium.
      • Control Premium and Valuation Methods.
      • Other Topics.
  • 1506 SUMMARY


CHAPTER 16: VALUING NON-TRADED FINANCIAL OPTIONS

  • 1600 INTRODUCTION
    • Option Terminology
    • Reasons for Valuations
    • How This Chapter Is Organized
  • 1601 STOCK OPTIONS
    • Definitions
    • The Value of Traded Stock Options
  • 1602 OPTION PRICING MODELS
    • Black-Scholes Model
      • Sources of Option Pricing Software.
    • Binomial Model
    • Factors That Create Value
    • Objective of Option Pricing Models
      • A Basic Example.
    • Illustration of the Black-Scholes Model
      • Intrinsic Value.
      • Time to Exercise.
      • Volatility.
      • Risk-free Rate of Interest.
      • Dividend Yield.
  • 1603 OTHER PUBLICLY TRADED ASSETS WITH OPTION COMPONENTS
    • Convertible Bonds
      • Using Convertible Bonds.
      • Valuing Convertible Bonds.
  • 1604 EXECUTIVE STOCK OPTIONS
    • Regulatory Guidance on Valuing Executive Stock Options
      • Financial Accounting Standards Board.
      • Securities and Exchange Commission.
      • Internal Revenue Service.
      • View of Some Courts.
    • Valuation Principles for Nontraded Executive Stock Options
      • Value Based on Time to Expiration or the Expected Holding Period.
      • Risk Aversion.
      • Proportion of Individual's Wealth.
      • Volatility of the Underlying Security.
      • Additional Marketability Issues.
    • Reload Options
      • Illustration.
    • Basic Information Request for Valuing Executive Stock Options
  • APPENDIX 16A: Glossary of Option Terminology
  • APPENDIX 16B: Stock Option Disclosure in Johnson & Johnson's 2006 Annual Report
  • APPENDIX 16C: Document Request Letter for Executive Stock Options


CHAPTER 17: INTANGIBLE ASSETS

  • 1700 REASONS TO VALUE INTANGIBLE ASSETS
  • 1701 DEFINITIONS AND EXAMPLES OF INTANGIBLE ASSETS
    • Definitions
    • Differences between Tangible and Intangible Assets
      • Evidence versus Valuation.
      • Omnipresence.
      • Capacity Constraints.
      • High Returns.
  • 1702 THE CLASSIFICATIONS OF INTANGIBLE ASSETS
    • Identifiable versus Unidentifiable Intangible Assets
      • Identifiable Intangible Assets.
      • Unidentifiable Intangible Assets.
    • Functional Classifications
  • 1703 FAIR VALUE IN FINANCIAL REPORTING--WHAT IS IT?
    • Definition of Fair Value and Key Concepts Embodied in the Definition
      • Definition.
      • Key Concepts.
      • Fair Value Hierarchy.
    • Valuation Approaches Defined Under SFAS No. 157
    • Other Fair Value Guidance
  • 1704 ACCOUNTING AND FINANCIAL REPORTING REQUIREMENTS FOR INTANGIBLE ASSETS
    • Statement of Financial Accounting Standards No. 141R
      • Acquisition Method Replaces Purchase Method.
    • Statement of Financial Accounting Standards No. 142
      • Differences between SFAS No. 142 and Prior Accounting Guidance.
      • Implementation of SFAS No. 142.
    • Tax Treatment of Intangible Assets
  • 1705 INTANGIBLE ASSET VALUATION APPROACHES
    • The Cost Approach
    • The Market Approach
      • Guideline Sale Transaction Method.
      • Guideline License Method.
    • The Income Approach
      • Discounted Future Benefits Method.
      • Example.
      • Relief from Royalty Method.
      • Multi-period Excess Earnings Method.
      • Residual Method.
  • 1706 INTELLECTUAL PROPERTY
    • Property Rights
      • Patents.
      • Trademarks and Service Marks.
      • Copyrights.
    • Economic Attributes
      • Increase Revenue.
      • Decrease Costs.
      • Reduce Required Investments.
      • Reduce Time to Market.
      • Preventative Nonuse.
    • Licensing
    • Reasons for Intellectual Property Valuation
    • Valuation Approaches
    • Remaining Useful Life Analysis
      • Economic Life.
      • Economic Life versus Legal Life.
  • APPENDIX 17A: Patent Infringement Damages
  • APPENDIX 17B: Intangible Asset Valuation Bibliography


BUSINESS VALUATIONS CHECKLISTS AND PRACTICE AIDS

  • VAL-PA-1: Work Programs
    • VAL-PA-1.1: Work Program
    • VAL-PA-1.2: Work Program--Internal Engagement
  • VAL-PA-2: Engagement Acceptance
    • VAL-PA-2.1: Engagement Acceptance Form
    • VAL-PA-2.2: Project Feasibility Assessment Form--Internal Engagement
    • VAL-PA-2.3: ET Interpretation 101-3 Independence Documentation Form
  • VAL-PA-3: Engagement Administration
    • VAL-PA-3.1: Sample Fee Estimate Worksheet
    • VAL-PA-3.2: Time and Resource Budget Form--Internal Engagement
    • VAL-PA-3.3: Potential Future Services Form
  • VAL-PA-4: Engagement Letters
    • VAL-PA-4.1: Sample Engagement Letter Drafting Form
    • VAL-PA-4.2: Sample Engagement Letter Drafting Form--Litigation Support Services
    • VAL-PA-4.3: Engagement Letter Addendum Drafting Form
    • VAL-PA-4.4: Security Agreement Drafting Form
  • VAL-PA-5: Data Acquisition
    • VAL-PA-5.1: Data Collection Checklist
    • VAL-PA-5.2: Document Request Letter
    • VAL-PA-5.3: Receipt for Return of Company Documents
    • VAL-PA-5.4: Case Fact Sheet
    • VAL-PA-5.5: Document Tracking Form
    • VAL-PA-5.6: Document Request Letter Drafting Form--Litigation Support Services
  • VAL-PA-6: Obtaining Background Information
    • VAL-PA-6.1: Company and Industry Background Information Form
    • VAL-PA-6.2: Professional Practice Background Information Form
    • VAL-PA-6.3: Family Limited Partnership Background Information Form
  • VAL-PA-7: Normalized Net Income Worksheet
  • VAL-PA-8: Ratio Analysis Worksheet
  • VAL-PA-9: Capitalized Returns Methods
    • VAL-PA-9.1: Valuation Procedures Checklist--Capitalized Returns Methods
    • VAL-PA-9.2: Discount and Capitalization Rate Worksheet--Build-up Method
    • VAL-PA-9.3: Discount and Capitalization Rate Worksheet--CAPM Method Using Guideline Public Companies
    • VAL-PA-9.4: Capitalized Returns Worksheet
  • VAL-PA-10: Valuation Procedures Checklist--Discounted Future Returns Methods
  • VAL-PA-11: Guideline Company Methods
    • VAL-PA-11.1: Valuation Procedures Checklist--Value Multiples Using Guideline Companies Methods
    • VAL-PA-11.2: Guideline Company Comparison Worksheet
    • VAL-PA-11.3: Value Multiple Computation Worksheet--Guideline Company Method
    • VAL-PA-11.4: Value Multiple Computation Worksheet--Guideline Transaction Method
    • VAL-PA-11.5: Determination of a Single Value Multiple Worksheet
  • VAL-PA-12: Excess Earnings Method
    • VAL-PA-12.1: Valuation Procedures Checklist--Excess Earnings Method
    • VAL-PA-12.2: Return on Net Tangible Assets Worksheet (Excess Earnings Method)
    • VAL-PA-12.3: Valuation Worksheet--Excess Earnings Method
  • VAL-PA-13: Valuation Procedures Checklist--Net Asset Value Method
  • VAL-PA-14: Valuation Procedures Checklist--Liquidation Value Method
  • VAL-PA-15: Multiple of Discretionary Earnings Method
    • VAL-PA-15.1: Valuation Procedures Checklist--Multiple of Discretionary Earnings Method
    • VAL-PA-15.2: Valuation Worksheet--Multiple of Discretionary Earnings Method
    • VAL-PA-15.3: Valuation Multiple Development Worksheet--Multiple of Discretionary Earnings Method
  • VAL-PA-16: Valuation Reports
    • VAL-PA-16.1: Valuation Report Checklist
    • VAL-PA-16.2: Valuation Report Drafting Form
    • VAL-PA-16.3: Valuation Report Drafting Form--Internal Engagement
  • VAL-PA-17: Representation Letters
    • VAL-PA-17.1: Sample Representation Letter Regarding Information Provided to the Valuation Consultant
    • VAL-PA-17.2: Sample Representation Letter--Internal Engagement
  • VAL-PA-18: Valuation Engagement Review Checklist

  • Continuing Professional Education

  • CPE & Training Solutions

  • INDEX

Valuing a Business: The Analysis and Appraisal of Closely Held Companies, 5th Edition

Valuing a Business: The Analysis and Appraisal of Closely Held Companies, 5th Edition
Cost of Capital

Cost of Capital, 5th Edition
The Lawyer’s Guide to The Cost of Capital

The Lawyer’s Guide to The Cost of Capital
Cost of Capital in Litigation

Cost of Capital in Litigation
Standards of Value: Theory and Applications

Standards of Value: Theory and Applications
The Best of Shannon Pratt

The Best of Shannon Pratt
PPC's Guide to Business Valuations

PPC's Guide to Business Valuations
Valuing Small Businesses and Professional Practices, 3rd Edition

Valuing Small Businesses and Professional Practices, 3rd Edition
The Market Approach to Valuing Businesses, 2nd Edition

The Market Approach to Valuing Businesses, 2nd Edition
Business Valuation Discounts and Premiums, 2nd Edition

Business Valuation Discounts and Premiums, 2nd Edition
The Lawyer's Business Valuation Handbook, 2nd Edition

The Lawyer's Business Valuation Handbook, 2nd Edition
Business Valuation Body of Knowledge: Exam Review and Professional Reference, 2nd Edition

Business Valuation Body of Knowledge: Exam Review and Professional Reference, 2nd Edition
Business Valuation and Federal Taxes: Procedure, Law, and Perspective, 2nd Edition

Business Valuation and Federal Taxes: Procedure, Law, and Perspective, 2nd Edition