Abstract

The expectation of continued patronage from existing customers is recognized as a valuable business asset. For many business enterprises, customer relationships can represent a significant component of corporate balance sheets. The valuation of customer relationship intangible assets considers the underlying life characteristics of the customer population along with expected earnings from the customers in estimating the customer relationship value.

Abstract

Delaware's corporation law provides stockholders of Delaware corporations with the right to receive the judicially determined “fair value” of their shares in connection with certain corporate transactions. This article provides an overview of the Delaware appraisal statute and appraisal actions brought under it, as well as the standards generally employed by the Delaware Court of Chancery to determine fair value. It also summarizes the rules governing the allocation of fees and costs in an appraisal action, as well as the calculation of post-merger interest on the fair value award.

Abstract

The Estate of Noble was published in January 2005. This decision is important because of its emphasis on subsequent events—a critical concept for taxpayers, the Internal Revenue Service, and appraisers.

Abstract

A growing number of applications in valuing privately held companies require a determination of stock return volatility estimates for privately held companies. This article provides an objective methodology for determining appropriate adjustments to guideline publicly traded company stock return volatilities based on size to assist in estimating stock return volatilities for privately held companies.

Abstract

During the last six years, a variety of S corporation models have been developed and promoted that endeavor to correct the conceptual flaws of the “traditional” application of the discounted cash flow method. One of the most recent entries is a model developed by Nancy J. Fannon (the “Fannon Model”) and published in 2007 by Business Valuation Resources in a binder titled Fannon's Guide to the Valuation of Subchapter S Corporations. This article examines and discusses the foundational elements of the Fannon Model and provides conclusions as to whether these elements are consistent with generally accepted business valuation concepts and theory.

Abstract

The S corporation models measure the benefit of the avoidance of dividend and capital gains taxes. But just when you might have thought the S corporation debate was about to settle down around this simple concept, we have more to talk about than ever. While traditional S-corporation valuation models acknowledge that the comparison is to the public C-corporation investor, they have been silent as to the distinction between the current dividend and capital-gains-tax rates and that which is part of the equity-risk premium. The distinction—which has been the subject of significant study in the financial literature—is notable and bears further discussion.

The author would like to give special thanks to David Dufendach, CPA/ABV, ASA, Executive Director of Advisory Services, Grant Thornton, LLP, for his assistance an guidance with the preparation of this article.

Abstract

Recently,¹ a new method for adjusting the required rate of return for privately held companies has been proposed, currently being referred to as the Butler Pinkerton Model (BPM)² for Company-Specific Risk.³ The authors have updated their model and explanation in several articles.⁴ The website of Business Valuation Resources, which sells the model, provides sample calculations, various review references, and a list of Frequently Asked Questions (FAQ).⁵ In one such FAQ, the authors state, “We have a standing invitation to the business valuation community to critique the calculation.” This article accepts the challenge and goes further by challenging the very foundations for their assertions contained in these articles and the claims contained in their answers in the FAQ.

Abstract

This article confronts the perennial question in our professional community: Is business valuation art, or is it science? The view taken here is that it is neither. Just as surely as masonry, surgery, and woodworking, it is craft. Using medicine as a foil, the paper explains why valuation is craft, discusses the dysfunctional reward systems in place for those in charge of membership organizations, recalls the political responses to the savings-and-loan rip-off of the 1980s and to the accounting scandals that led off this new century, and ends by proposing six steps that membership organizations should take to elevate what is rapidly becoming a mail-order credential to the rarefied status of craft.