While the basic valuation equation is simplistic, business valuation is not as easy as the equation may suggest. In this post we discuss some of the basics and how it intersects with fair market value, a prevalent standard of value that business owners are commonly required (or find desirable) to obtain in their normal course of business.
With the election of Donald Trump as the 45th President of the United States, the stock market has rallied in what has come to be called the Trump Rally. The Trump Rally has been fueled in part by the anticipation of cuts in corporate taxes, which was a campaign and early-presidency goal. Something is happening with the multiples of earnings placed on public shares. So what is likely to happen to multiples for successful private companies if the Trump tax cut is implemented? Let’s take a look.
Would you rather live a life with margin or one of being marginless? I’ve always worked on one or more of the important areas of life where margin is needed: personal finances, work, physical conditioning, spiritual life, emotional, and time. Seldom do I hit on all cylinders at the same time. But I keep trying.
I’ve been thinking about the meaning of a simple word, margin, in our lives. Last week, I wrote the first in what will be a series of posts on this topic. It was titled Do You Have Margin in the Important Areas of Your Life? And so we continue a discussion of the concept of margin in life, this time, focusing on early lessons from my father.
In mid-2015, I commented on the apparent anomaly of a financing round for Uber that had an implied market value of equity (MVE) in excess of that of FedEx (FDX). At the time, Uber’s implied MVE was $51 billion, and that of FedEx was $48 billion. My post addressed some of the issues that I saw at the time. Similarly, last week, I read an article in the Wall Street Journal titled “Tesla, on a Hot Streak, Passes Ford in Investor Value”. That caught my attention, because Tesla is young and quite small and Ford is 100 years old and quite large. Why then does Tesla have such a high valuation?
Is business ownership a binary thing? Do we either own our businesses or not? The binary notion leads business owners to think either in terms of the status quo or of an eventual sale of the business. The truth is that between the two bookends of status quo and an eventual third-party sale are many possibilities for creating shareholder liquidity and diversification and facilitating both ownership and management transition
We live life now, at the margin between the past and the future. What we do at this margin impacts our futures. What we have done or have not done in the past influences, or creates, the options we have now in our lives, or at the margins. In other words, the margins that we create in various areas of our lives impact or influence what we can, will, or won’t do each day.
Planning for management succession has been a recurring topic on this blog. This week, the succession news at Disney is that Robert Iger, chairman and CEO, will stay on for at least an additional year while the Company seeks a replacement. This posts uses the example of Disney to highlight the critical management succession issue for all companies, both public and private.
A recent post by Matt Crow, president of Mercer Capital, on our RIA blog, RIA Valuation Insights, gives me a reason to jump back in to posting here. In his recent post, “An All-Terrain Clause for your RIA’s Buy-Sell Agreement,” he addresses buy-sell agreement pricing provisions for a rapid, substantial change in company performance.