This video post asks business owners and advisers two questions: 1) Is your company’s (or your clients’ companies for advisers) dividend policy a good one that is meeting the needs of its owners for current income versus capital appreciation? And 2) If not, do you need to be working on your dividend policy to improve its effectiveness?
This video briefly discusses the importance of margin in our businesses and our lives. Everything we do is at the margin of time between the past and the future. Put enough focused days together and, at the margin, we can positively impact our personal and business lives.
Regardless of how it is stated – every company has a dividend policy. In this post, we address the possible uses for a company’s Net Operating Cash Flow, reflective of its dividend and reinvestment policy.
The WACC, or Weighted Average Cost of Capital, is an enterprise level discount rate used in capitalizing debt-free income measures and in terminal value calculations for DCF methods. There is virtually no readily available market evidence regarding WACC. On the other hand, there is substantial relative and comparative information available regarding EBITDA multiples. This video post discusses how to convert a WACC, which most market participants and appraisers know little about, into an EBITDA multiple for a company based on its own unique circumstances. And, as promised, we do so in three easy steps.
Today’s valuation video addresses EBITDA, not as a number, but on a conceptual basis. We discuss seven good things that flow from EBTIDA that make it a focal point of analysis for bankers, investment bankers, private equity participants, business owners, and business appraisers.
I have read too many buy-sell agreements to count. The typical valuation process in them (for appraisals following trigger events) range from 150 words to perhaps 300-400 words. That simply is not enough “wordage” to describe or define any valuation process, much less an appraisal. I started focusing on the seven defining elements over the years as I experienced problems with each and every one of them in troubled or litigated valuation processes where I was either an appraiser or a consultant. Do your clients’ buy-sell agreements adequately define the seven elements? Or does your company’s agreement do the same? If they are not clear in an agreement, future trouble is almost certainly lurking.
The standard of value of fair market value is very familiar to attorneys and appraisers and often the subject of apparent disagreement. This post looks at the standard definition of fair market value and then breaks it down into its component parts as they relate to hypothetical willing buyers and sellers. Fair market value occurs at the intersection of negotiations between these two sets of hypothetical parties. First, we must understand the meaning of fair market value. Next, we must ask the follow-up question: the fair market value of what? We investigate the relationship of the definition of fair market value and the asset(s) to which the definition pertains.
What adjustments are necessary to appropriately value a company? We normalize for non-recurring and unusual items and for discretionary expenses of owners. These are necessary to achieve marketable minority/financial control value. Then, if strategic control is desired, we adjust cash flows for synergistic or strategic cash flow benefits. It is important to understand the critical differences between normalizing and control adjustments.
I have been advocating single appraiser valuation processes for buy-sell agreements for many years. This video relates the story of the genesis of the idea that has led me to write four books on buy-sell agreements and to participate in buy-sell agreement processes all around the nation.
At the core of every business valuation, whether of an entire business or an interest in a business, lie three key elements that must be examined and understood. This is true regardless of the seeming complexity or simplicity of any valuation situation. The elements are expectations for cash flow, the expected growth in cash flow, and the risks associated with achieving the cash flow. In this short video post, we Keep It Simple, Sally or Stewart and will elaborate on the concepts in the near future.
