Business Valuation Review Volume 34: Issue 3

On what does growth in value primarily depend? Is it the magnitude of forecast cash flow, the growth in forecast cash flow, discount rates, or some combination? This article answers these questions. Additionally, the author develops a generalized discounted cash flow (GDCF) model, in which the standard discounted cash flow becomes a special case. The GDCF consists of a single formula for valuing a business. Finally, the author provides recommendations for management of the business that will increase growth in value the most.

The case Estate of Helen P. Richmond, Deceased, Amanda Zerbey, Executrix, Petitioner v. Commissioner of Internal Revenue, Respondent, T.C. Memo 2014-26, was not your ordinary family limited partnership tax court case. The subject interest was a noncontrolling interest in a C corporation that held only marketable securities with significant built-in capital gains (BICGs). The case was heard in the 3rd Circuit, which—unlike the 5th and 11th Circuits that had previously accepted a dollar-for-dollar reduction in value for the BICG tax—had not ruled on this issue. Another interesting issue was the selection of the valuation approach; the estate expert relied on the income approach, whereas the IRS expert relied on the asset approach. This article comments on weaknesses in the court's valuation approach and why the income approach is a valid method when valuing a noncontrolling interest.

Over the past four years, contrasting viewpoints have arisen in published articles and presentations in the valuation community surrounding the existence of value for intangible assets of a healthcare enterprise in the absence of positive net cash flow being generated by the operations of the entity in its entirety and the methodologies available to the valuation analyst. Over the recent period, trends within the broader economy, similar to the healthcare industry, have indicated that firms are employing, to ever greater extents, intangible assets. As healthcare enterprises continue to increase their utilization of intangible assets, it will become ever more important for practitioners to develop sound valuation strategies to apply to the intangible assets of an organization, keeping in mind that under the concept of highest and best use, the premise of value for a valuation engagement may need to change from value in use, as a going concern to value in exchange, should the enterprise in its entirety not produce positive net cash flows.

Hello everyone! Beginning on July 1, 2015, I became your new business valuation discipline chair. I am a managing director at Empire Valuation Consultants and have been a member of the Business Valuation Committee (BVC) since 2009. We have made great strides since then, and I am excited about continuing these efforts going forward.

Welcome to Our New Business Valuation Committee Members

Let me begin by welcoming our new officers:

Jeffrey S. Tarbell, ASA, is our new vice chair. Jeff is a director in Houlihan Lokey’s financial advisory services business and has been a dedicated BVC member and ASA advocate.

Editor’s Column

Set Yourself Apart with ASA

How Does Value Grow? Chasing Short-Term Income Destroys Long-Term Value

Thoughts on Estate of Richmond Tax Court Case

Valuation of Healthcare Intangible Assets in the Absence of Positive Net Cash Flows

From the Chair of the Business Valuation Committee

Welcome to Our New Business Valuation Committee Members

Volume 34, No. 3 — Complete Issue

From the Editor

Customer Concentration: Good, Bad, or Ugly?

From the Chair

Delaware Valuation Decisions, 2021 to 2024

Volume 44, No. 1 — Complete Issue