Houlihan Valuation Power Point

1,023 views

Published on

0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total views
1,023
On SlideShare
0
From Embeds
0
Number of Embeds
18
Actions
Shares
0
Downloads
17
Comments
0
Likes
0
Embeds 0
No embeds

No notes for slide

Houlihan Valuation Power Point

  1. 1. Basics of Valuation Presented by: Alan A. Ehrlich, Principal Houlihan Valuation Advisors Washington D.C./Maryland/Virginia
  2. 2. Business Valuation Theory <ul><li>Concept of Value </li></ul><ul><ul><li>Value to “whom”? </li></ul></ul><ul><ul><li>Value for what purpose or “why”? </li></ul></ul><ul><ul><li>Value as of “when”? </li></ul></ul>
  3. 3. Business Valuation Theory <ul><li>Concept of Value </li></ul><ul><ul><li>The value of any financial asset is equal to the net present value of the expected future cash flows (CF) derived from the asset, discounted at the required rate of return (k). </li></ul></ul><ul><ul><li>Value = Cash Flow </li></ul></ul><ul><ul><ul><ul><ul><li> ____________ </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li> k </li></ul></ul></ul></ul></ul>
  4. 4. Three Approaches To Valuing A Business <ul><li>Income Approach </li></ul><ul><ul><li>Based on the present value of all expected future benefits from the business </li></ul></ul><ul><ul><li>Discount rates are developed using observed and expected rates of return for securities of varying risk </li></ul></ul>
  5. 5. Three Approaches To Valuing A Business <ul><li>Income Approach </li></ul><ul><ul><li>Methods Used </li></ul></ul><ul><ul><ul><li>Discounted Cash Flows – multi-period </li></ul></ul></ul><ul><ul><ul><li>Capitalization – single period </li></ul></ul></ul>
  6. 6. Three Approaches To Valuing A Business <ul><li>Market Approach </li></ul><ul><ul><li>Based upon the Principle of Substitution </li></ul></ul><ul><ul><li>Capitalization rates are observed in the marketplace for both public and private business interests </li></ul></ul>
  7. 7. Three Approaches To Valuing A Business <ul><li>Market Approach </li></ul><ul><ul><li>Methods Used </li></ul></ul><ul><ul><ul><li>Guideline Public Company Method – based on the selling price of publicly traded shares </li></ul></ul></ul><ul><ul><ul><li>Merger and Acquisition Method – based on the sales of acquired/merged companies </li></ul></ul></ul>
  8. 8. Three Approaches To Valuing A Business <ul><li>Asset Approach </li></ul><ul><ul><li>Also based on the Principle of Substitution </li></ul></ul><ul><ul><li>In this approach the Balance Sheet is adjusted to market value by individually valuing all of the tangible and intangible assets less the market value of the company’s liabilities. </li></ul></ul>
  9. 9. Three Approaches To Valuing A Business <ul><li>Asset Approach </li></ul><ul><ul><li>Methods Used </li></ul></ul><ul><ul><ul><li>Fair Market Value (in continued use) </li></ul></ul></ul><ul><ul><ul><li>Net Asset Value (NAV) </li></ul></ul></ul><ul><ul><ul><li>Excess Earnings Method </li></ul></ul></ul><ul><ul><ul><li>Book Value </li></ul></ul></ul><ul><ul><ul><li>Reproduction Cost New </li></ul></ul></ul><ul><ul><ul><li>Replacement Cost New </li></ul></ul></ul><ul><ul><ul><li>More… </li></ul></ul></ul>
  10. 10. Standards Of Value <ul><li>Sentimental Value </li></ul><ul><li>Investment Value or Strategic Value </li></ul><ul><li>Fair Market Value* </li></ul><ul><li>Fair Value </li></ul><ul><li>Intrinsic Value </li></ul>
  11. 11. Premise of Value <ul><li>“Going Concern” – assumes that a business will continue into perpetuity </li></ul><ul><li>“Liquidation” – assumes that a business will NOT continue and be disbanded </li></ul><ul><ul><li>Orderly Liquidation </li></ul></ul><ul><ul><li>Forced Liquidation </li></ul></ul>
  12. 12. Premise Of Value <ul><li>Value in Exchange – This premise presupposes a proposed transaction of the property, wherein the property actually changes hands </li></ul><ul><li>Value in Use – Does not presuppose a proposed transaction, whereby the property actually changes ownership hands </li></ul>
  13. 13. Purpose and Intended Use <ul><li>The purpose may determine the standard of value used </li></ul><ul><li>The purpose may affect the choice or presentation of valuation methods </li></ul><ul><li>The sophistication of the intended user is an important consideration in choosing methods and reporting conclusions </li></ul>
  14. 14. Basic Variables Affecting Value <ul><li>Macroeconomic </li></ul><ul><li>Industry </li></ul><ul><li>Business Operations </li></ul><ul><li>Accounting & Finance </li></ul><ul><li>Law & Tax </li></ul><ul><li>Capital Markets </li></ul>
  15. 15. Steps of a Business Appraisal <ul><li>Define the assignment </li></ul><ul><li>Gather data </li></ul><ul><li>Analyze data </li></ul><ul><li>Arrive at value conclusion </li></ul><ul><li>Write report </li></ul>
  16. 16. Questions?

×