The Market Approach to Valuing Businesses Workbook

by Pratt, Shannon P.; Niculita, Alina V.

• ISBN13: 9780471717546
• ISBN10: 0471717541
• Edition: 2nd
• Format: Paperback
• Copyright: 2006-01-10
• Publisher: Wiley

Summary

Put the principles of the market approach to valuing businesses to work! This is an indispensable, hands-on workbook to help valuation experts (and those who want to be) better understand the application of methods used in the increasingly prevalent market approach to valuing businesses. With convincing evidence of value for both buyers and sellers, the market approach can end stalemates and get deals closed. Acclaimed for its empirical basis and objectivity, it's the model most favored by the IRS and the United States Tax Court--as long as it's properly implemented. A companion to the definitive book on the topic, The Market Approach to Valuing Businesses, Second Edition, this workbook includes questions and exercises that bring the concepts to life. It parallels the book and helps readers understand the methodologies. It also provides practical experience in applying the relevant theories and formulas. Perfect for CPAs, appraisers, corporate development officers, intermediaries such as brokers and investment bankers, venture capitalists, and consultants, this workbook can also be the basis for dynamic in-house training programs.

Author Biography

Shannon P. Pratt, CFA, FASA, MCBA, CM&AA, is the Chairman and CEO of Shannon Pratt Valuations, Inc. a premier business valuation firm located in Portland Oregon, and is the founder and Editor Emeritus of Business Valuation Resources, LLC. Over a distinguished career of close to four decades, he has performed valuation engagements for M&A, ESOPs, gift and estate taxation, marital dissolution, shareholder oppression and dissent, and numerous other purposes. He has conducted numerous fairness and solvency opinions, has testified in a wide variety of federal and state courts across the country, and frequently participates in arbitration and mediation proceedings. Dr. Pratt is one of the most successful and respected authors in his field. He is the author or coauthor of several industry standards, including Valuing a Business: The Analysis and Appraisal of Closely Held Companies, Valuing Small Businesses and Professional Practices, The Market Approach to Valuing Businesses, Standards of Value, Business Valuation and Taxes, The Lawyer's Business Valuation Handbook, and Cost of Capital.

ALINA V. NICULITA, CFA, is President and COO of Shannon Pratt Valuations, LLC. She earned her bachelor of economics in banking and financing from the Academy of Economic Studies in Bucharest, Romania, and her master's in business administration in finance from the Joseph M. Katz Graduate School of Business at the University of Pittsburgh. Ms. Niculita is a Chartered Financial Analyst, a member of the CFA Institute, and a candidate of the American Society of Appraisers in Business Valuation.

Table of Contents

Preface	vii
Section One: Questions	1	(86)
Defining Market Multiples and Market Approach Methods	3	(4)
The Guideline Public Company Method	7	(2)
The Guideline Merged and Acquired Company Method	9	(3)
Other Market Methods	12	(2)
Finding Public Company Market Transaction Data	14	(2)
Finding Merger and Acquisition Market Data	16	(4)
Adjusting Financial Statements	20	(2)
Comparative Financial Analysis	22	(2)
Compiling Useful Market Value Tables	24	(2)
Selecting, Weighting, and Adjusting Market Value Multiples	26	(3)
Control Premiums and Minority Discounts	29	(2)
Discounts for Lack of Marketability	31	(2)
Sample Case Questions	33	(42)
Reconciling Market Approach Values with Income and Asset Approach Values	75	(2)
Does Size Matter? Evidence from Empirical Data	77	(2)
Common Errors in Implementing the Market Approach	79	(4)
The Dismal Track Record of U.S. Market Acquisitions	83	(2)
The Market Approach in the Courts	85	(2)
Section Two: Answers	87	(42)
Defining Market Multiples and Market Approach Methods	89	(2)
The Guideline Public Company Method	91	(1)
The Guideline Merged and Acquired Company Method	92	(2)
Other Market Methods	94	(2)
Finding Public Company Market Transaction Data	96	(1)
Finding Merger and Acquisition Market Data	97	(2)
Adjusting Financial Statements	99	(2)
Comparative Financial Analysis	101	(1)
Compiling Useful Market Value Tables	102	(1)
Selecting, Weighting, and Adjusting Market Value Multiples	103	(2)
Control Premiums and Minority Discounts	105	(1)
Discounts for Lack of Marketability	106	(2)
Sample Case Answers	108	(15)
Reconciling Market Approach Values with Income and Asset Approach Values	123	(2)
Does Size Matter? Evidence from Empirical Data	125	(1)
Common Errors in Implementing the Market Approach	126	(2)
The Dismal Track Record of U.S. Market Acquisitions	128	(1)
The Market Approach in the Courts	129