Specific Company Risk Factors to Consider When Determining a Discount Rate

Posted on Monday, October 13, 2014 by

Under the income approach to business valuation, the discount rate is one of the key inputs in determining a company’s value. In the book Valuing a Business, Shannon P. Pratt (one of the leading pioneers in valuation theory) defines a discount rate as follows: “In economic terms, a present value discount rate is an ’opportunity […]

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Levels of Value – All Values Are Not Created Equal

Posted on Monday, May 19, 2014 by

 (an excerpt from Skoda Minotti’s “How a Company is Valued” eBook) Investors in publicly-traded companies have the luxury of knowing the value of their investment at virtually any time.  An internet connection and a few clicks of a mouse are all its takes to get an up-to-date stock quote.  Of all U.S. companies, however, less […]

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Selling Your Business: The Importance of Strategic Value in Business Transactions

Posted on Wednesday, April 30, 2014 by

In my last blog, I discussed the ways in which a valuation expert might able to justify the $19 billion purchase price in Facebook’s acquisition of WhatsApp.  While it is rather difficult to support such a price with any degree of certainty, there are scenarios where one can see significant potential value in this acquisition.  […]

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The Case of the Missing Post-Acquisition Income

Posted on Thursday, February 13, 2014 by

One of my favorite games as a kid was the murder-mystery classic Clue.  Do you remember trying to deduce the culprit, the murder weapon and the room in which the attack took place? “I think it was Colonel Mustard in the kitchen with the candlestick.” “I think it was Mrs. Peacock in the hall with […]

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A Peek the Behind the Curtain: The Secrets to Business Valuation

Posted on Wednesday, November 13, 2013 by

I have always been intrigued by magic.  It is not often that a magician reveals his secrets, but I recently watched a movie, Now You See Me, in which the magicians actually revealed the secret to their performance.  In an early scene of the movie, a volunteer from the audience at a magic show in […]

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What Cosmo Kramer Can Teach Us About Working Capital and Capital Expenditures in a Business Valuation

Posted on Tuesday, September 10, 2013 by

In my opinion, Seinfeld was one of the best true-to-life sitcoms in television history because the storylines drew from actual events in the writers’ lives.  One of those recurring storylines was the spirited discussions surrounding Cosmo Kramer’s never-ending business schemes; in particular, in the episode “The Voice” – Kramer (reading the newspaper): Look at this […]

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The Valuation Artist

Posted on Thursday, August 1, 2013 by

No, that is not a typo in the title.  Being a good valuation analyst requires a considerable amount of artistic ability.  When most people think of their accountant, they probably do not picture someone terribly creative or artistic.  However, valuation analysis is one of the few areas of accounting that is subjective and doesn’t involve […]

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How many ways can you spell value? Not one, not two, not three…

Posted on Thursday, July 18, 2013 by

Let’s say you have a need to obtain a business valuation and you have a group of advisors offering assistance.  One advisor says something about equity value and another says something about invested capital value.  Do you know the difference?  If you find yourself in a situation in which these terms are tossed around, then […]

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The Muck Stops Here: The Two Things Rambo Can Teach Us About Unrecorded Liabilities

Posted on Tuesday, July 9, 2013 by

Rambo: First Blood Part II is one of those movies that I have to stop and watch whenever I come across it while channel surfing.  I can’t think of a movie that has more unintentionally hilarious moments: Rambo cracking his knuckles around a microphone and threatening his old commander at coincidentally the same time as […]

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How Does Risk Impact the Required Rate of Return?

Posted on Wednesday, June 19, 2013 by

Here is the short answer:  risk and the required rate of return are directly related.  As risk increases, the required rate of return increases.  As risk decreases, the required rate of return decreases.  Let’s take a closer look at what that means and how it affects the value of a company. Be careful not to […]

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