Business Valuation Review Volume 38: Issue 2

The rights and the value of preferred stock have been the subject of several Delaware court decisions. These decisions are particularly significant for understanding the importance of contractual rights as the defining attribute affecting the valuation of preferred stock. Directors' fiduciary duties are primarily to common shareholders, while obligations to preferred shareholders are primarily contractual. Preferred stocks' contractual rights, as interpreted in these decisions, directly affects the value of the preferred and the common. When common shareholders control the board, the impact on the preferred can be negative. The common may be adversely impacted when preferred shareholders, particularly venture capitalists, control the board. Some commentators have argued that, when going-concern value is less than the preferred's preference, common stockholders should be entitled to the option value of their shares.

Intangible assets represent an increasingly relevant component of an entity's value. However, the value of intangible assets is typically not measured on corporate financial statements unless in a business combination under both generally accepted accounting principles (GAAP) in the United States and International Financial Reporting Standards (IFRS) internationally. Feng Gu and Baruch Lev have been among the strongest critics of valuations that rely upon simple accounting metrics from corporate financial statements, going as far as proclaiming “the end of accounting” and the need to focus on valuation methods that may be driven by non-GAAP key performance indicators (KPIs).¹

Letter from the Editor

Impact of Contractual Rights on Preferred Stock Valuations in Delaware

Valuing Intangible Assets under the Mandatory Performance Framework: A Fair Value Update

From the Chair

Volume 38, No. 2 — 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