As we continue in this series on Revenue Ruling 59-60 and fair market value, we now analyze the factors used to describe the standard of value. In this post, we discuss Revenue Ruling 59-60’s “basic eight” factors for consideration in fair market value determinations. In addition, we dig into the “critical three” factors mentioned in Revenue Ruling 59-60 – common sense, informed judgment, and reasonableness.
After a break of more than two months, I’m back to ChrisMercer.net. This blog and its predecessors has been the beginning point of exposure for most of my thinking for many years. With this post, we turn to a new primary topic of focus — appraisal review. As you will see, there is a great deal more to the concept of appraisal review than a few methods or techniques to be employed. I’m looking forward to the coming exploration of appraisal review.
Now is an excellent time for closely held and family business boards to consider engaging in leveraged transactions to enhance shareholder liquidity and accelerate shareholder returns. The Biden Administration has not yet increased corporate or personal tax rates and interest rates are still low. Banks are seeking quality loans and your leveraged transaction might fit their bill. And perhaps your shareholders desire some liquidity from their ownership, even if you are not ready to don’t desire to sell your company.
In this post, two corporate finance tools available to owners of closely held and family businesses are discussed at length: Leveraged Dividend Recapitalizations and Leveraged Share Repurchases. These tools can be used to create liquidity outside the ownership of private businesses or interests in them.
Dividend Policy. Every company has one. The question is, is it a good one in terms of meeting the needs of your company’s owners? This post explains the concept of Net Operating Cash Flow (NOCF) (after-tax), which is the source for debt repayment, for working capital for growth, for replacement capex, and for growth capex. It is also the source for economic distributions to owners. Whatever your board decides about the uses of NOCF, your dividend policy is either consciously made or it is residual in nature.
Should business appraisers normalize excess owner compensation and perquisites, or agency costs, to market levels for similar services when valuing a non-controlling subject interest? In this post we discuss the answer to this question and the logic behind it. This post will be controversial for some readers, but we believe after reading it, you will agree.
This sixth post in a series on restricted stock discounts begins and ends by referencing all previous posts. The focus today is on the expected holding period premium, the key difference between restricted shares and otherwise identical publicly traded shares of restricted stock issuers. We discuss the reasons for restricted stock discounts and illustrate the calculation of expected holding period premiums implied by a sample restricted stock transaction.
RSD-4 is the fourth in a series of posts on the restricted stock discount. This post addresses what valuation discounts (or premiums) are supposed to do, and then examines the restricted stock discount in the context of valuation ratios. In short, restricted stock discounts, or averages of them, cannot be used as valuation ratios for purposes of developing marketability discounts. This will be disquieting to many valuation analysts, but it is simply true.
Valuation may look at the past as a guide, but it is based on expectations. When boiled down to its essence, the value of any business is based on expectations about three critical factors. Learn what they are and why they are so important in this short Valuation Video.
It is a fact that for every use of the single period income capitalization method, where a single assumption about expected earnings is made as a representative of “expected” earnings, there is an implied forecast of earnings and an implied use of the discounted cash flow method. This Valuation Video provides two looks – and two forecasts – for a company that might have been prepared by two different appraisers. The question addressed in this Valuation Video is whether the “forecasts” used in single-period income capitalizations are reasonable and the best representation of near-term expected cash flows and their future growth. I think the perspectives offered will be worth your time to listen to the video or to read the transcript.
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.
