Financial valuation : applications and models, + website / James R. Hitchner.

Format:

Book

Series:

Wiley finance series.

Wiley Finance Series

Language:

English

Subjects (All):

Corporations--Valuation.

Corporations.

Physical Description:

1 online resource (1,292 pages) : illustrations.

Edition:

Fourth edition.

Place of Publication:

Hoboken, New Jersey : Wiley, 2017.

System Details:

Access using campus network via VPN at home (THEi Users Only)

Summary:

"A practically-focused resource for business valuation professionals Financial Valuation: Applications and Models provides authoritative reference and practical guidance on the appropriate, defensible way to prepare and present business valuations. With contributions by 30 top experts in the field, this new fourth edition provides an essential resource for those seeking the most up-to-date guidance, with a strong emphasis on applications and models. Coverage includes state-of-the-art methods for the valuation of closely-held businesses, nonpublic entities, intangible, and other assets, with comprehensive discussion on valuation theory, a consensus view on application, and the tools to make it happen. Packed with examples, checklists, and models to help you navigate your valuation project, this book also provides hundreds of expert "tips" and best practices in clear, easy-to-follow language. The companion website provides access to extensive appendix materials, and the perspectives of valuation thought-leaders add critical insight throughout each step of the process. Valuation is an important part of any organization's overall financial strategy, and seemingly-small inaccuracies or incomplete assessments can have big repercussions. This book walks you through the valuation process to give you the skills and understanding you need to get it done right. Learn best practices from 30 field-leading experts Follow clear examples for complex or unfamiliar scenarios Access practical tools that streamline the valuation process Understand valuation models and real-world applications The business valuation process can become very complex very quickly, and there's no substitute for clear guidance and a delineated framework in the run-up to completion. Get organized from the beginning, and be systematic and methodical every step of the way. Financial Valuation: Applications and Models is the all-encompassing, expert guide to business valuation projects"-- Provided by publisher.

"This new and updated edition presents a consensus view from 30 top valuations experts. It shows the appropriate and defensible way to prepare and present business valuations with a strong emphasis on applications and models"-- Provided by publisher.

Contents:

Intro

Financial Valuation

Contents

Preface

About the Editor

About the Authors

Acknowledgments

Chapter 1 Introduction to Financial Valuation

Who Values Businesses?

Purpose of a Valuation

Professional Valuation Organizations

Standards of Value

Fair Market Value

Investment Value

Intrinsic Value

Fair Value (State Rights)

Fair Value (Financial Reporting)

Premise of Value

Principles of Appraisal Practice

Dates

Approaches to Value

Valuation Procedures

Summary

Addendum 1-Valuation Checklist/Ready Reference (Revenue Ruling 59-60)

Introduction

Revenue Ruling 59-60

Addendum 2-International Glossary of Business Valuation Terms

Addendum 3-AICPA Glossary of Additional Terms, Statements on Standards for Valuation Services vs Section 100

Chapter 2 Standards of Value

Defining a Standard of Value

Every Appraisal Is Unique

How the Standard of Value Can Affect the Final "Number"

Premises of Value

Common Standards of Value

Fair Value

Common Operational Premises Underlying the Standard of Value

Going Concern

Liquidation Value

Application of Specific Standards of Value

Fair Market Value in Estate and Gift Tax Valuations

Price

Willing Buyer

Willing Seller

Compulsion

Reasonable Knowledge

Subsequent Events

Fair Value in Shareholder Dissent and Oppression

Control Premiums

Immediately Before

Unless Exclusion Would Be Inequitable

Extraordinary Circumstances

Current and Customary Techniques

Standard of Value in Divorce

Personal Goodwill

Enterprise Goodwill

Shareholder-Level Discounts

Shareholder Agreements

Fair Value in Financial Accounting

Measurement

The Asset or Liability

The Price.

The Principal (or Most Advantageous) Market

Market Participants

Input Levels

Conclusion

Chapter 3 Research and Its Presentation

Obtaining Internal Information

External Sources of Data

A Directive from the Internal Revenue Service

Types of External Data

Research Techniques and Planning the Search

Determine What Information Is Required

Determine Where to Look

Develop a Search Strategy

Evaluate Information

Information Sources: Business Financial Databases

Economic Research

Selected Sources of Economic Information

Industry Research

Selected Sources of Industry Information

Guideline Public Company and Guideline Company Transactions Research

Sources for Guideline Public Company Data

Guideline Company Transactions Databases

Presenting Research in a Report

Cost of Capital Research

Data for Assets/Investments in the United States

Data for International Assets/Investments

Other Sources of Information

BV Resources

Damodaran Data Page

Mercer Capital

Valuation Products and Services, LLC

Valuation Resources

ValuSource

Willamette Management Associates

Chapter 4 Financial Statement and Company Risk Analysis

Historical Financial Statement Analysis

Length of Financial History to be Used

Spreading Financial Statements in Columnar Format

Adjustments to Financial Statements

Normalization of Historical Financial Statements

Unusual, Nonrecurring, and Extraordinary Items

Nonoperating Items

Changes in Accounting Principle

Nonconformance with GAAP

Tax-Affecting the Earnings of Subchapter S Corporations and Other Adjustments

Degree of Ownership Interest

Normalization Adjustments

Common Sizing Normalized Financial Statements

Ratio Analysis (Quantitative Analysis)

Comparative Analysis.

Risk Analysis (Qualitative Analysis)

Industry Structure Analysis-The Porter Model

Industry Conduct-The McKinsey 7-S Model

The DuPont Model

S.W.O.T. Analysis

Other Company Risk Analysis Considerations

Macroenvironmental Analysis

Addendum 1-Commonly Used Financial Ratios: Application to Ale's Distributing

Liquidity Ratios

Activity Ratios

Leverage Ratios

Profitability Rati

Rate of Return Ratios

Chapter 5 Income Approach

Fundamental Theory

Equity Interests Are Investments

Investments and Business Valuations Involve the "Forward-Looking" Premise

Basics of Income Approach-"A Fraction"

The Numerator

The Denominator

Income Approach Methodologies

Normalization Process

"Big Five" Categories of Adjustments

Adjustments for Ownership Characteristics

Example

Adjustments for GAAP Departures and Extraordinary, Nonrecurring, and/or Unusual Items

Adjustments for Nonoperating Assets and Liabilities and Related Income and Expenses

Adjustments for Taxes

Applicable Tax Rate(s)

Adjustments for Synergies from Mergers and Acquisitions

Determination of Future Benefit Stream (Cash Flows)

Defining the Benefit Stream

Net Income

Net Cash Flow

Defining Net Cash Flow

Cash Flow Direct to Equity (Direct Equity Method)

Cash Flow to Invested Capital (Invested Capital Method)

Use of Historical Information

Current Earnings Method

Simple Average Method

Weighted Average Method

Trend Line-Static Method

Formal Projection Method (Detailed Cash Flow Projections)

The Capitalized Cash Flow Method

The CCF Formula

End-of-Year Convention for CCF

Midyear Convention for CCF Method

Eleven Common Mistakes

The Discounted Cash Flow Method

Definition and Overview

DCF Model

End-of-Year and Midyear Conventions

Comparative Example.

Adjusting the DCF for a Specific Valuation Date

Multistage Explicit Periods

Terminal Value

Calculation of the Terminal Value

Other Terminal Value Calculations

Capitalized Cash Flow Method (Revisited)

Relationship of Discounted Cash Flow Method to Capitalized Cash Flow Method

Excess Cash Flow Method

History of the Method

Returns-Discount or Capitalization?

Step 1. Determine the Fair Market Value of Net Tangible Assets

Step 2. Develop "Normalized" Cash Flow

Step 3. Determine an Appropriate Blended Rate for Net Tangible Assets

Step 4. Determine the Normalized Cash Flows Attributable to Net Tangible Assets

Step 5. Subtract Cash Flows Attributable to Net Tangible Assets from Total Cash Flows to Determine Cash Flows Attributable to Intangible Assets

Step 6. Determine an Appropriate Rate of Return for Intangible Assets

Step 7. Determine the Fair Market Value of the Intangible Assets by Capitalizing the Cash Flows Attributable to Them by an Appropriate Capitalization Rate

Step 8. Add Back the Fair Market Value of the Net Tangible Assets

Step 9. Subtract Any Interest-Bearing Debt

Step 10. Reasonableness Test

Best Practices

Addendum 1-Application of the Direct Equity Method (DEM) and the Invested Capital Method (ICM)

Overview

Addendum 2-Dealing with Debt

Debt and CCF

Debt and DCF (Discounted Cash Flow)

Addendum 3-Best Practices: The Terminal Year of a Discounted Cash Flow Model

CONCLUSION

Chapter 6 Cost of Capital/Rates of Return

Value Drivers

Relationship between Risk and Return

Risk Spectrum

Components of Risk

Maturity Risk

Market Risk (Systematic Risk)

Company-Specific Risk

Liquidity and Marketability Risk

Characteristics of Cost of Capital

Weighted Average Cost of Capital.

Calculating the WACC

Capital Structure

The Cost of Debt

The Cost of Equity

Capital Asset Pricing Model (CAPM)

Modified Capital Asset Pricing Model (MCAPM)

Build-Up Model (BUM)

Arbitrage Pricing Theory (APT)

Sources of Data

Risk-Free Rate (Rf)

Equity Risk Premium (RPm or ERP)

Unconditional Equity Risk Premium

Conditional Equity Risk Premium

Forward-Looking Premium

Duff &amp

Phelps Equity Risk Premium Adjustment

Beta

Understanding Beta

Unlevering and Relevering Betas

Industry Risk Premium

Size Premium (RPs)

Empirical Data on Size Premiums

CRSP Deciles Size Premia

Risk Premium Report Portfolios

Does Size Matter?

Arguments Against Applying Size Premia

Issues in Cost of Capital Application

After-Tax Cash Flow

Minority or Control

Cost of Equity Case Study

Implied Returns from Market Data

Price-Earnings Method

Adjustments to the Price-Earnings Ratio

Company-Specific Adjustments

Growth and Size Factors

Size and Company-Specific Risk Adjustments

Emerging Equity Models

Total Beta Model

Implied Private Company Pricing Model (IPCPM)

Legacy Valuations: Using Ibbotson Data

Venture Capital Returns

AICPA Study

QED Study

Pepperdine Capital Markets Report

Other Sources

Addendum 1-SPARC: Strategy/People/Architecture/Routines/Culture

A Quick Snapshot of Valuation Basics

More on Unsystematic Risk

A Framework for Analyzing Unsystematic Risk

SPAR C Framework

Merging the Three Levels into a Single Graphic

Identifying "Effects" (a.k.a. Outlier Metrics)

Addendum 2-Twenty Ways to Calculate the Cost of Equity Capital: A Case Study

Chart 1

Chart 2

Chart 3

Chapter 7 International Cost of Capital

Background

Numerator: Cash Flows

Denominator: Cost of Capital.

Estimating the Cost of Equity.

Notes:

Includes index.

Description based on print version record.

ISBN:

1-119-31233-7

1-119-31231-0

1-119-36281-4

OCLC:

986065672