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Business Valuation Fundamentals for CPAs –A Five-Part Webinar Series Part One: Introduction to Business Valuation & Understanding the Engagement Presenter Jason Pierce  CPA, CMA, CFM, CVA, CFFA
DISCLAIMER The Information contained in this presentation is only intended for general purposes. It is neither intended nor should it be construed as either legal, accounting, and/or tax advice nor as an opinion provided by the Consultants’ Training Institute (CTI), the National Association of Certified Valuation Analysts (NACVA), the presenter or the presenter’s firm. The material may not be applicable or suitable for the reader’s specific needs or circumstances. Readers/viewers may not use this information as a substitute for consultation with qualified professionals in the subject matter presented here. Lastly, all rights are reserved.  No part of this work covered by the copyrights herein may be reproduced or copied in any form or by any means without the express permission of the presenter(s), the CTI or NACVA.
Continuing Professional Education (CPE) Attestation for this Webinar Program Level: Basic Delivery Method: Group-Internet-Based Prerequisites: None CPE Credits: Two (2) hours Advanced Preparation: None Fields of Study: Specialized Knowledge & Applications The presentation will include periodic online questions to assess continuous participation and to determine the program's effectiveness. Registration is on a per-person basis and allows access to one phone line. For an additional fee, others from the same office may attend and listen to the presentation via a conference phone. However, under NASBA rules, where a group attends via a conference phone (where your participation cannot be measured), only one attendee, the primary registrant, may receive NASBA qualified CPE. All other attendees will receive CPE credit, which may qualify for CPE in your state based on its applicable rules, but will certainly be qualified CPE for purposes of recertifying a NACVA credential if you are a credentialed member of the Association. The National Association of Certified Valuation Analysts is registered with the National Association of State Boards of Accountancy (NASBA) as a sponsor of continuing professional education on the National Registry of CPE Sponsors. State boards of accountancy have final authority on the acceptance of individual courses for CPE credit. Complaints regarding registered sponsors may be addressed to the National Registry of CPE Sponsors, 150 Fourth Avenue North, Suite 700, Nashville, TN 37219-2417. Web site: www.nasba.org
[object Object],Jason Pierce, CPA, CMA, CFM, CVA, CFFA
Evolution of Business Valuation ,[object Object],[object Object]
[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Evolution of Business Valuation
Evolution of Business Valuation ,[object Object]
Evolution of Business Valuation ,[object Object],[object Object],[object Object],[object Object],[object Object],Concept
Rev. Rul. 59-60 Relevant Factors ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Evolution of Business Valuation History of Internal Revenue Service Pronouncements
Evolution of Business Valuation ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Professional & Regulatory Bodies ,[object Object],[object Object],[object Object]
Professional & Regulatory Bodies ,[object Object],[object Object],Financial Accounting Standards Board  Significant Pronouncements FASB 123R – Accounting for Stock-Based Compensation.
[object Object],[object Object],Professional & Regulatory Bodies
[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Professional & Regulatory Bodies
Professional & Regulatory Bodies ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Professional & Regulatory Bodies
[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Purposes of Business Valuation ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Purposes of Business Valuation ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Purposes of Business Valuation
[object Object],[object Object],[object Object],[object Object],Purposes of Business Valuation
Valuation Concepts VALUATION VS. APPRAISAL
Valuation Concepts ADVOCATE VS. EXPERT
Valuation Concepts ART VS. SCIENCE
Value of a Business ,[object Object],Concept Expected  Benefit = Required   Return = Present Value Expected   Benefit Return
[object Object],[object Object],[object Object],[object Object],[object Object],Value of a Business
[object Object],[object Object],[object Object],Value of a Business
Polling Question ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Overview of the Valuation Process ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Overview of the Valuation Process Building the Valuation Pyramid Step 1:  Covered Today  (Lucky you!!) Determine Purpose & Client Standard of Value Interest to be Valued Value & Delivery Discounts & Premiums Valuation Approaches Financial, Economic & Industry Analysis Understanding the Engagement Sanity Checks Weightings Selecting Approaches Purchase Justification Rules of Thumb Minority/Control Mergerstat Big Tax Income Capitalization of Income/Cash Flow Discounted Cash Flow WACC Economic/Industry Global/National/Local Analysis Trade Publications Internet/Web Sites Valuation Date Premise of Value Type of Report Report Calculation of Value Summary Report Oral Report Other Approaches Subsequent Events Marketability Restricted Stock Studies Pre IPO Studies Asset Adjusted Net Assets Excess Earnings Market  Completed Transactions Public Guideline Company Financial Site Visit Reliability of Information Normalizing Adjustments Benefit Stream Analyze Limiting Conditions Experience & Qualifications Legal & Regulatory Requirements Professional Standards
Overview of the Valuation Process STEP 2:  Financial Economic & Industry Analysis Covered in Session 2:  (Stick around, this group  is just getting started ) Determine Purpose & Client Standard of Value Interest to be Valued Value & Delivery Discounts & Premiums Valuation Approaches Financial, Economic & Industry Analysis Understanding the Engagement Sanity Checks Weightings Selecting Approaches Purchase Justification Rules of Thumb Minority/Control Mergerstat Big Tax Income Capitalization of Income/Cash Flow Discounted Cash Flow WACC Economic/Industry Global/National/Local Analysis Trade Publications Internet/Web Sites Valuation Date Premise of Value Type of Report Report Calculation of Value Summary Report Oral Report Other Approaches Subsequent Events Marketability Restricted Stock Studies Pre IPO Studies Asset Adjusted Net Assets Excess Earnings Market  Completed Transactions Public Guideline Company Financial Site Visit Reliability of Information Normalizing Adjustments Benefit Stream Analyze Limiting Conditions Experience & Qualifications Legal & Regulatory Requirements Professional Standards
Overview of the Valuation Process Step 3:  Valuation Approaches This is the nuts and bolts – Sessions 3 & 4 Determine Purpose & Client Standard of Value Interest to be Valued Value & Delivery Discounts & Premiums Valuation Approaches Financial, Economic & Industry Analysis Understanding the Engagement Sanity Checks Weightings Selecting Approaches Purchase Justification Rules of Thumb Minority/Control Mergerstat Big Tax Income Capitalization of Income/Cash Flow Discounted Cash Flow WACC Economic/Industry Global/National/Local Analysis Trade Publications Internet/Web Sites Valuation Date Premise of Value Type of Report Report Calculation of Value Summary Report Oral Report Other Approaches Subsequent Events Marketability Restricted Stock Studies Pre IPO Studies Asset Adjusted Net Assets Excess Earnings Market  Completed Transactions Public Guideline Company Financial Site Visit Reliability of Information Normalizing Adjustments Benefit Stream Analyze Limiting Conditions Experience & Qualifications Legal & Regulatory Requirements Professional Standards
Overview of the Valuation Process Step 4:  Discounts and Premiums Session 5:  Don’t be Scared of heights, see you then! Determine Purpose & Client Standard of Value Interest to be Valued Value & Delivery Discounts & Premiums Valuation Approaches Financial, Economic & Industry Analysis Understanding the Engagement Sanity Checks Weightings Selecting Approaches Purchase Justification Rules of Thumb Minority/Control Mergerstat Big Tax Income Capitalization of Income/Cash Flow Discounted Cash Flow WACC Economic/Industry Global/National/Local Analysis Trade Publications Internet/Web Sites Valuation Date Premise of Value Type of Report Report Calculation of Value Summary Report Oral Report Other Approaches Subsequent Events Marketability Restricted Stock Studies Pre IPO Studies Asset Adjusted Net Assets Excess Earnings Market  Completed Transactions Public Guideline Company Financial Site Visit Reliability of Information Normalizing Adjustments Benefit Stream Analyze Limiting Conditions Experience & Qualifications Legal & Regulatory Requirements Professional Standards
Overview of the Valuation Process Step 5:  Sanity Checks Making sure we have it together before we reach the top Determine Purpose & Client Standard of Value Interest to be Valued Value & Delivery Discounts & Premiums Valuation Approaches Financial, Economic & Industry Analysis Understanding the Engagement Sanity Checks Weightings Selecting Approaches Purchase Justification Rules of Thumb Minority/Control Mergerstat Big Tax Income Capitalization of Income/Cash Flow Discounted Cash Flow WACC Economic/Industry Global/National/Local Analysis Trade Publications Internet/Web Sites Valuation Date Premise of Value Type of Report Report Calculation of Value Summary Report Oral Report Other Approaches Subsequent Events Marketability Restricted Stock Studies Pre IPO Studies Asset Adjusted Net Assets Excess Earnings Market  Completed Transactions Public Guideline Company Financial Site Visit Reliability of Information Normalizing Adjustments Benefit Stream Analyze Limiting Conditions Experience & Qualifications Legal & Regulatory Requirements Professional Standards
Overview of the Valuation Process Step 6:  Now put it all together and ship it off !! Determine Purpose & Client Standard of Value Interest to be Valued Value & Delivery Discounts & Premiums Valuation Approaches Financial, Economic & Industry Analysis Understanding the Engagement Sanity Checks Weightings Selecting Approaches Purchase Justification Rules of Thumb Minority/Control Mergerstat Big Tax Income Capitalization of Income/Cash Flow Discounted Cash Flow WACC Economic/Industry Global/National/Local Analysis Trade Publications Internet/Web Sites Valuation Date Premise of Value Type of Report Report Calculation of Value Summary Report Oral Report Other Approaches Subsequent Events Marketability Restricted Stock Studies Pre IPO Studies Asset Adjusted Net Assets Excess Earnings Market  Completed Transactions Public Guideline Company Financial Site Visit Reliability of Information Normalizing Adjustments Benefit Stream Analyze Limiting Conditions Experience & Qualifications Legal & Regulatory Requirements Professional Standards
Understanding the Engagement ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Understanding the Engagement
Polling Question ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Client & Purpose ADVOCATE VS. EXPERT concept
Standard of Value ,[object Object],[object Object],[object Object],[object Object]
Fair Market Value (FMV) ,[object Object],[object Object],concept
Fair Market Value ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Fair Value ,[object Object]
Fair Value ,[object Object],[object Object]
Fair Value ,[object Object],[object Object]
Fair Value ,[object Object],[object Object]
Fair Value – for Financial Reporting ,[object Object],[object Object],[object Object],[object Object]
[object Object],[object Object],Fair Value – for Financial Reporting
Fair value is defined in FASB Statement 123R, as: “ the amount at which an asset (or liability) could be bought (or incurred) or sold (or settled) in a current transaction between willing parties, that is, other than a forced liquidation sale.” Fair Value – for Financial Reporting
Fair Value – Marital  ,[object Object],[object Object],[object Object]
Strategic / Investment Value ,[object Object],[object Object]
Standards of Value ,[object Object],[object Object],Other Valuation Opportunities: M&A, Strategic Planning, ESOP’s Concept Fair Market Value / Fair Value Divorce Fair Value Stock Options Fair Value Intangible Assets in Business Combinations Fair Market Value Gift and Estate
Polling Question ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Premise of Value ,[object Object]
Premise of Value ,[object Object],[object Object],[object Object]
Premise of Value – Book Value ,[object Object],[object Object]
Premise of Value – Going Concern ,[object Object],[object Object]
Premise of Value – Liquidation Value ,[object Object],[object Object],[object Object],[object Object]
Limiting Conditions ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Polling Question ,[object Object],[object Object],[object Object],[object Object]
Qualifications & Experience ,[object Object],[object Object],[object Object],[object Object]
Questions to ask Yourself ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Conclusion to Part 1 Q U E S T I O N S ?
Please complete your Webinar Evaluation Form and CPE Attestation Form. Fax both forms to NACVA at (866) 548-2315. Keep a copy of the CPE Attestation Form for your records.

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Introduction to Business Valuation & Understanding the Engagement

  • 1. Business Valuation Fundamentals for CPAs –A Five-Part Webinar Series Part One: Introduction to Business Valuation & Understanding the Engagement Presenter Jason Pierce CPA, CMA, CFM, CVA, CFFA
  • 2. DISCLAIMER The Information contained in this presentation is only intended for general purposes. It is neither intended nor should it be construed as either legal, accounting, and/or tax advice nor as an opinion provided by the Consultants’ Training Institute (CTI), the National Association of Certified Valuation Analysts (NACVA), the presenter or the presenter’s firm. The material may not be applicable or suitable for the reader’s specific needs or circumstances. Readers/viewers may not use this information as a substitute for consultation with qualified professionals in the subject matter presented here. Lastly, all rights are reserved. No part of this work covered by the copyrights herein may be reproduced or copied in any form or by any means without the express permission of the presenter(s), the CTI or NACVA.
  • 3. Continuing Professional Education (CPE) Attestation for this Webinar Program Level: Basic Delivery Method: Group-Internet-Based Prerequisites: None CPE Credits: Two (2) hours Advanced Preparation: None Fields of Study: Specialized Knowledge & Applications The presentation will include periodic online questions to assess continuous participation and to determine the program's effectiveness. Registration is on a per-person basis and allows access to one phone line. For an additional fee, others from the same office may attend and listen to the presentation via a conference phone. However, under NASBA rules, where a group attends via a conference phone (where your participation cannot be measured), only one attendee, the primary registrant, may receive NASBA qualified CPE. All other attendees will receive CPE credit, which may qualify for CPE in your state based on its applicable rules, but will certainly be qualified CPE for purposes of recertifying a NACVA credential if you are a credentialed member of the Association. The National Association of Certified Valuation Analysts is registered with the National Association of State Boards of Accountancy (NASBA) as a sponsor of continuing professional education on the National Registry of CPE Sponsors. State boards of accountancy have final authority on the acceptance of individual courses for CPE credit. Complaints regarding registered sponsors may be addressed to the National Registry of CPE Sponsors, 150 Fourth Avenue North, Suite 700, Nashville, TN 37219-2417. Web site: www.nasba.org
  • 4.
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  • 6.
  • 7.
  • 8.
  • 9.
  • 10. Evolution of Business Valuation History of Internal Revenue Service Pronouncements
  • 11.
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  • 13.
  • 14.
  • 15.
  • 16.
  • 17.
  • 18.
  • 19.
  • 20.
  • 21.
  • 22.
  • 25. Valuation Concepts ART VS. SCIENCE
  • 26.
  • 27.
  • 28.
  • 29.
  • 30.
  • 31. Overview of the Valuation Process Building the Valuation Pyramid Step 1: Covered Today (Lucky you!!) Determine Purpose & Client Standard of Value Interest to be Valued Value & Delivery Discounts & Premiums Valuation Approaches Financial, Economic & Industry Analysis Understanding the Engagement Sanity Checks Weightings Selecting Approaches Purchase Justification Rules of Thumb Minority/Control Mergerstat Big Tax Income Capitalization of Income/Cash Flow Discounted Cash Flow WACC Economic/Industry Global/National/Local Analysis Trade Publications Internet/Web Sites Valuation Date Premise of Value Type of Report Report Calculation of Value Summary Report Oral Report Other Approaches Subsequent Events Marketability Restricted Stock Studies Pre IPO Studies Asset Adjusted Net Assets Excess Earnings Market Completed Transactions Public Guideline Company Financial Site Visit Reliability of Information Normalizing Adjustments Benefit Stream Analyze Limiting Conditions Experience & Qualifications Legal & Regulatory Requirements Professional Standards
  • 32. Overview of the Valuation Process STEP 2: Financial Economic & Industry Analysis Covered in Session 2: (Stick around, this group is just getting started ) Determine Purpose & Client Standard of Value Interest to be Valued Value & Delivery Discounts & Premiums Valuation Approaches Financial, Economic & Industry Analysis Understanding the Engagement Sanity Checks Weightings Selecting Approaches Purchase Justification Rules of Thumb Minority/Control Mergerstat Big Tax Income Capitalization of Income/Cash Flow Discounted Cash Flow WACC Economic/Industry Global/National/Local Analysis Trade Publications Internet/Web Sites Valuation Date Premise of Value Type of Report Report Calculation of Value Summary Report Oral Report Other Approaches Subsequent Events Marketability Restricted Stock Studies Pre IPO Studies Asset Adjusted Net Assets Excess Earnings Market Completed Transactions Public Guideline Company Financial Site Visit Reliability of Information Normalizing Adjustments Benefit Stream Analyze Limiting Conditions Experience & Qualifications Legal & Regulatory Requirements Professional Standards
  • 33. Overview of the Valuation Process Step 3: Valuation Approaches This is the nuts and bolts – Sessions 3 & 4 Determine Purpose & Client Standard of Value Interest to be Valued Value & Delivery Discounts & Premiums Valuation Approaches Financial, Economic & Industry Analysis Understanding the Engagement Sanity Checks Weightings Selecting Approaches Purchase Justification Rules of Thumb Minority/Control Mergerstat Big Tax Income Capitalization of Income/Cash Flow Discounted Cash Flow WACC Economic/Industry Global/National/Local Analysis Trade Publications Internet/Web Sites Valuation Date Premise of Value Type of Report Report Calculation of Value Summary Report Oral Report Other Approaches Subsequent Events Marketability Restricted Stock Studies Pre IPO Studies Asset Adjusted Net Assets Excess Earnings Market Completed Transactions Public Guideline Company Financial Site Visit Reliability of Information Normalizing Adjustments Benefit Stream Analyze Limiting Conditions Experience & Qualifications Legal & Regulatory Requirements Professional Standards
  • 34. Overview of the Valuation Process Step 4: Discounts and Premiums Session 5: Don’t be Scared of heights, see you then! Determine Purpose & Client Standard of Value Interest to be Valued Value & Delivery Discounts & Premiums Valuation Approaches Financial, Economic & Industry Analysis Understanding the Engagement Sanity Checks Weightings Selecting Approaches Purchase Justification Rules of Thumb Minority/Control Mergerstat Big Tax Income Capitalization of Income/Cash Flow Discounted Cash Flow WACC Economic/Industry Global/National/Local Analysis Trade Publications Internet/Web Sites Valuation Date Premise of Value Type of Report Report Calculation of Value Summary Report Oral Report Other Approaches Subsequent Events Marketability Restricted Stock Studies Pre IPO Studies Asset Adjusted Net Assets Excess Earnings Market Completed Transactions Public Guideline Company Financial Site Visit Reliability of Information Normalizing Adjustments Benefit Stream Analyze Limiting Conditions Experience & Qualifications Legal & Regulatory Requirements Professional Standards
  • 35. Overview of the Valuation Process Step 5: Sanity Checks Making sure we have it together before we reach the top Determine Purpose & Client Standard of Value Interest to be Valued Value & Delivery Discounts & Premiums Valuation Approaches Financial, Economic & Industry Analysis Understanding the Engagement Sanity Checks Weightings Selecting Approaches Purchase Justification Rules of Thumb Minority/Control Mergerstat Big Tax Income Capitalization of Income/Cash Flow Discounted Cash Flow WACC Economic/Industry Global/National/Local Analysis Trade Publications Internet/Web Sites Valuation Date Premise of Value Type of Report Report Calculation of Value Summary Report Oral Report Other Approaches Subsequent Events Marketability Restricted Stock Studies Pre IPO Studies Asset Adjusted Net Assets Excess Earnings Market Completed Transactions Public Guideline Company Financial Site Visit Reliability of Information Normalizing Adjustments Benefit Stream Analyze Limiting Conditions Experience & Qualifications Legal & Regulatory Requirements Professional Standards
  • 36. Overview of the Valuation Process Step 6: Now put it all together and ship it off !! Determine Purpose & Client Standard of Value Interest to be Valued Value & Delivery Discounts & Premiums Valuation Approaches Financial, Economic & Industry Analysis Understanding the Engagement Sanity Checks Weightings Selecting Approaches Purchase Justification Rules of Thumb Minority/Control Mergerstat Big Tax Income Capitalization of Income/Cash Flow Discounted Cash Flow WACC Economic/Industry Global/National/Local Analysis Trade Publications Internet/Web Sites Valuation Date Premise of Value Type of Report Report Calculation of Value Summary Report Oral Report Other Approaches Subsequent Events Marketability Restricted Stock Studies Pre IPO Studies Asset Adjusted Net Assets Excess Earnings Market Completed Transactions Public Guideline Company Financial Site Visit Reliability of Information Normalizing Adjustments Benefit Stream Analyze Limiting Conditions Experience & Qualifications Legal & Regulatory Requirements Professional Standards
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  • 40. Client & Purpose ADVOCATE VS. EXPERT concept
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  • 50. Fair value is defined in FASB Statement 123R, as: “ the amount at which an asset (or liability) could be bought (or incurred) or sold (or settled) in a current transaction between willing parties, that is, other than a forced liquidation sale.” Fair Value – for Financial Reporting
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  • 65. Conclusion to Part 1 Q U E S T I O N S ?
  • 66. Please complete your Webinar Evaluation Form and CPE Attestation Form. Fax both forms to NACVA at (866) 548-2315. Keep a copy of the CPE Attestation Form for your records.