Discount for Lack of Control and Marketability

Detailed Report Of
MIAMI CREAMERY, INC.
5555 AMERICADRIVE | ANYWHERE, FL 33111
Prepared by
7819 N. Dale Mabry Highway
STE 200
Tampa, FL 33614
1-800-311-0703

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LETTER OF TRANSMITTAL
Report Date- 6/24/2014
Miami Creamery, Inc.
5555 AmericaDrive
Anywhere, FL 33556
Regarding: Valuation of Miami Creamery, Inc.
Dear Mr. Robert Smith (Client; President):
We have performed a valuation engagement as that term is defined by The National Association of
Certified Valuators and Analysts’ (NACVA) Professional Standards and in accordance with IRS Revenue
Rulings including, but not limited to, ARM 34, RR59-60, RR 65-193, RR 77-287, RR 93-12.
The interest being valued is fifty percent (50%) non-controlling interest of the Equity in Miami
Creamery, Inc., herein known as the Subject Company or Company, as of the valuation date:
12/31/2013
This valuation was performed solely to assist our Client in the matter of business planning; Intended
user(s) of the valuation are the shareholders of the Company and its agents. The resulting estimate of
value should not be used for any other purpose or by any other party for any purpose. The estimate of
value that results from the engagement is expressed as a conclusion of value.
Any prior sales of the interest, Subsidiaries or Affiliates, discounts, restrictions or limitations,
hypothetical conditions, references to specialist used, disclosure of subsequent events, applications of
jurisdictional exception, or any other information the valuation analyst deemed useful to enable user(s)
of the report to understand the work performed shall be detailed in the Introduction section of this
report.
Based on our analysis, as described in this report, the estimate of value of the interest in the Company as
of the valuation date was (rounded):
$50,685
This conclusion is subject to the Statement of Assumptions and Limiting Conditions section found in this
report. We have no obligation to update this report or our conclusion of value for information that comes
to our attention after the date of this report.
Salvatore B. Urso
President
Ameri-Street Advisory, Inc.

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CONTENTS
LETTER OF TRANSMITTAL.......................................................................................................................... - 2 -
INTRODUCTION............................................................................................................................................... - 5 -
DISCOUNTS: ENTITY-LEVEL AND SHAREHOLDER LEVEL ................................................................. - 9 -
ENTITY-LEVEL DISCOUNTS......................................................................................................................... - 10 -
Entity-Level Discount for Lack of Marketability (E-DLOM) ..............................................................- 10 -
SHAREHOLDER-LEVEL DISCOUNTS ............................................................................................................ - 11 -
Discount for Lack of Control (DLOC) .................................................................................................- 11 -
Shareholder-Level Discount for Lack of Marketability (S-DLOM) ....................................................- 15 -
ASSETS & LIABILITIES ALLOCATION (USING THE INCOME APPROACH) ..................................- 25 -
FINANCIAL STATEMENT/INFORMATION ANALYSIS.........................................................................- 26 -
HISTORICAL INCOME & EXPENSES SUMMARY .......................................................................................... - 26 -
SELLER’S DISCRETIONARY EARNINGS CALCULATION .............................................................................. - 27 -
NORMALIZED, RECAST INCOME & EXPENSE GRAPHS............................................................................... - 28 -
Income Graph........................................................................................................................................- 28 -
Gross Profit and SDE Margins Graph .................................................................................................- 29 -
Tax Return Front Page Expenses Graph.............................................................................................- 30 -
Tax Return Schedule A Graph .............................................................................................................- 31 -
Tax Return Schedule A Other COGS Graph .......................................................................................- 32 -
Tax Return Other deductions Graph....................................................................................................- 33 -
DETERMINING THE EXPECTED MULTIPLE & CAP RATE.................................................................- 34 -
THE COMPARABLES (COMPS) ..................................................................................................................... - 35 -
List of Comparables (Comps)................................................................................................................- 36 -
Graphic of Comparable Business & Subject Company .......................................................................- 37 -
ENTERPRISE RISK FACTORS........................................................................................................................ - 38 -
Goodwill (Personal vs. Business) Risk Factors....................................................................................- 39 -
Sales Stability Risk Factors...................................................................................................................- 40 -
Other risk Factors .................................................................................................................................- 41 -
EFFECT OF RISK FACTORS ON COMPANY VALUE ...................................................................................... - 42 -
RECONCILIATION OF CONCLUSION OF VALUE (SANITY CHECK)..................................................- 43 -

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CAPITALIZED EARNINGS ............................................................................................................................. - 44 -
NET MARGINS.............................................................................................................................................. - 45 -
BEFORE-TAX-CASH FLOW .......................................................................................................................... - 46 -
DEBT-SERVICE RATIOS ............................................................................................................................... - 47 -
ANALYST & PRINCIPAL PROFILES...........................................................................................................- 48 -
FRANCESCO URSO, PRINCIPAL.................................................................................................................... - 48 -
SALVATORE B. URSO, PRINCIPAL ............................................................................................................... - 49 -
WILLIAM BURNHAM, PRINCIPAL................................................................................................................ - 50 -
CHRISTOPHER HENDERSON, PRINCIPAL .................................................................................................... - 50 -
STATEMENT OF ASSUMPTIONS & LIMITING CONDITIONS ............................................................- 51 -
INTERNATIONAL GLOSSARY OF BUSINESS VALUATION TERMS..................................................- 53 -
GLOSSARY OF ADDITIONAL TERMS........................................................................................................- 60 -
BACKUP DATA................................................................................................................................................- 63 -
BALANCE SHEET AS OF DECEMBER 31, 2013 ............................................................................................. - 63 -
INCOME STATEMENT JAN 1, 2013 TO DEC 31, 2013 ................................................................................... - 64 -
ABBREVIATED TAX RETURN FOR 2012....................................................................................................... - 65 -
FMV RESTRICTED STOCK STUDY TM
COMPANION GUIDE .......................................... - 68 -
NORMALIZED OWNER & FAMILY MEMBER SALARIES & WAGES............................................ - 69 -

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INTRODUCTION
 Type of Report: Detailed Report as defined by NACVA.
 The Subject Company Description: Retail Ice Cream Business.
 History of the Subject: The business franchise opened in August 2006 by two families,
namely- Smith family and Jones family. Mr. and Mrs. Smith together own 50% interest while
Mr. and Mrs. Jones own the remaining 50% interest. Both families have been involved in day-
to-day operations since its inception.
 Prior Sale of Interest in the Subject: None.
 Subsidiaries or Affiliates: None.
 Discounts:
 Discount for Lack of Control (DLOC) was applied; see section below.
 Entity-Level Discount for Lack of Marketability (E-DLOM) was not applied.
 Shareholder-Level Discount for Lack of Marketability (S-DLOM) was applied; see section
below.
 Restrictions and Limitations Bestowed upon the Analyst: None.
 Restrictions and Limitations Bestowed upon the Shareholder(s): Due to a 50%
ownership by each family, neither family nor family member has control. That is, no one
family has the largest block of stock ownership, swing vote powers, or cumulative voting
powers.
 Hypothetical Conditions: None.
 References to Specialist used: None.
 Subsequent Events: None to our knowledge as of the report date.
 Jurisdictional Exceptions: None to our knowledge as of the report date.
 Other Material Matter(s) Influencing Value: None to our knowledge as of the report date.
 Goodwill Allocation: In some cases, depending on the purpose and premise of the valuation,
as well as local state laws, it becomes necessary to bifurcate the Goodwill into Personal
Goodwill and Enterprise Goodwill. We refer to the separation and exclusion of the Personal
(aka Professional) Goodwill as the “PGW carve-out.” In this case, the PGW is not carved out.

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 Sources of Information:
 The source of the financial information was corporate tax returns (2010 – 2012), income
statement (1/1/2013 to 12/31/2013), and balance sheet (as of 12/31/2013), which were
all provided by the client or their advisors. See Backup Data section in this report.
 The source of the non-financial information was
 In person initial interview held on 4/17/2014.
 The analyst did not tour the facility.
 Company attendees of initial interview:
 Robert Smith, President of Company
 John Jones, VP of Company
 Standard of Value, Premise of Value, Approach, and Methods used:
In rendering a conclusion of value the analyst estimated fair market value on the premise of in
continued use, as a Going Concern. The analyst considered four standard valuation approaches,
namely- Income Approach, Asset Approach, and Market Approach.
Ultimately, the analyst determined that the income approach yielded the highest value.
Furthermore, the method used within the chosen approach was the capitalization of Seller's
Discretionary Earnings (SDE).

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 The calculation of values using Indirect Equity Method
 Conclusion of Value Equation (100% Controlling Interest & No Discounts)1
Value1= Operating Assets + Non-Operating Assets – Total Liabilities
$200,590 = $268,163 + $71,152 - ($138,725)
 Conclusion of Value (after DLOC applied)
Value2 = (Operating Assets x (1-DLOC)) + Non-Operating Assets – Total Liabilities
$173,773.76 = ( $268,163 ) x (1- 10% ) + $71,152 + ($138,725)
 Conclusion of Value (after DLOC & DLOM applied)
Value3 = Operating Assets x (1-DLOC) x (1-DLOM) + Non-Operating Assets – Total Liabilities
$101,369.77 = ( $268,163 ) x (1- 10% ) x (1- 30% ) + $71,152 + ($138,725)
Conclusion of Value = Percentage of Ownership x Value3
$50,685 = 50% x $101,370
Our Conclusion of Value is that One Hundred Percent (100%) controlling interest prior to any
discounts for control or lack of marketability is $200,590, where the Fair Market Value of the
Operating Assets component would be $268,163, which is composed of $120,570 (FF&E) and
$123,556 (leasehold improvements) (Tangible Assets) plus $16,826 (Intangible Asset:
Business or Enterprise Goodwill) plus $7,211 (Intangible Asset: Personal or Professional
Goodwill), all based on the valuation performed herein. Furthermore, the Non-Operating Assets
are $71,152 and Total Liabilities are $138,725.
The 100% controlling, non-discounted interest in the Operating Assets was derived by using the
income approach, where the historical Weighted Seller’s Discretionary Earnings2 (wSDE) of
$139,435 was multiplied by the Sale-Price-to-Earnings Multiple (SP/SDE) of 1.9; see the sections
below called Seller’s Discretionary Earnings (SDE) and Determining the Expected Multiple and CAP
Rate.
1 See table in section called Assets & Liabilities Included (Operating & Non-Operating) for a summary of all
operating and non-operating tangible assets and liabilities before minority interest discount is applied (if
applicable).
2 Seller’s Discretionary Earnings (SDE) is used as the basis for the value of this company. It represents the
net earnings before interest, income taxes, depreciation, amortization, owner perks, and elimination of all
non-recurring income and expenses. It also assumes there is only one full-time working owner. Weighted
SDE or wSDE takes into consideration multiple years’ performance.

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The historical period considered was from FY2010 through FY2013.
Rationale for the Future Benefit Stream: Since there appears to be a slight increase in revenue and
earnings trend from 2011 to 2013, the historical benefit stream was weighted heavier in the more
current years in order to more accurately predict the future benefit stream. Thus, the weights to
the respective SDE values were applied as such in order to estimate the Future Benefit Stream:
50% on FY13; 40% on FY12; 5% on FY11; and 5% on FY10.
Furthermore, Fifty Percent (50%) of a 50%- 50% ownership interest with the Personal Goodwill
not carved out is $50,685 since a 10% DLOC and 30% DLOM were applied to the Operating
Assets. Note that none of the discounts was applied to the non-operating assets and liabilities.

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DISCOUNTS: ENTITY-LEVEL AND SHAREHOLDER LEVEL
If any Discounts were applied, they were only applied to the operating assets (tangible and
intangible), not to the non-operation assets and liabilities (e.g., cash, AR, AP, long-term debt,
inventory, etc.).
The various discounts that may have been applied are
1. Discount for Lack of Control (DLOC)
2. Entity-Level Discount for Lack of Marketability (E-DLOM)
3. Shareholder-Level Discount for Lack of Marketability (S-DLOM)
Furthermore, if the analyst chose to apply more than one discount, they would have been applied
to the Operating Assets in sequence ("Multiplicatively” not "Additively"). That is, if applicable, E-
LOMD is applied first; then the DLOC is applied; then the S-DLOM is applied.

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ENTITY-LEVEL DISCOUNTS
ENTITY-LEVEL DISCOUNT FOR LACK OF MARKETABILITY (E-DLOM)
Discount for Lack of Marketability (DLOM) at the Entity level shall be referred to in this report as
Entity-Level Discount for Lack of Marketability, E-DLOM. It applies to the entity as a whole, i.e. to
all shareholders regardless of the ownership structure. If such discounts are warranted, we shall
manifest this into the build-up of the CAP Rate or Discount Rate in the Subject risk allocation
section.
Examples influencing E-DLOM would include negative attributes such as high personal goodwill
by the owner or key employee, high customer or supplier concentration, pending litigation,
undesirable location, risky lease, or any other factor that would mitigate a hypothetical Buyer
base.
Also, since our valuation first calculates the 100% ownership value, if utilized, this discount is
applied before the shareholder-level discount for lack of marketability (S-DLOM), discussed in the
section below.
None Applied in this Report.

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SHAREHOLDER-LEVEL DISCOUNTS
DISCOUNT FOR LACK OF CONTROL (DLOC)
A control owner enjoys valuable prerogatives of ownership that a non-control owner does not,
including the ability to appoint management, determine management compensation &
prerequisites, set policy and change the course of the business, acquire and liquidate assets,
award contracts, make acquisitions, liquidate, dissolve, sell or recapitalize the company, etc. As
such, the non-controlling interest in a business is subject to what is known as a Discount for Lack
of Control, DLOC. Note that “Minority Interest” is a subset of non-control.
Our method for calculating DLOC includes two different approaches to arrive at our final value:
1. Use of Pubic Market Empirical Data. Specifically, if applicable, we shall use the
Mergerstat®/BVR Control Premium Study which publishes prices at which controlling
interests in public companies have sold relative to their previous “unaffected trading prices”
(prior to acquisition announcement). The Study’s “control premium” is defined as the
additional consideration that an investor would pay over a marketable minority value (i.e.,
current price of that same publicly traded stock). The DLOC is calculated indirectly from the
control premium using the equation:
𝐈𝐦𝐩𝐥𝐢𝐞𝐝 𝐌𝐢𝐧𝐨𝐫𝐢𝐭𝐲 𝐃𝐢𝐬𝐜𝐨𝐮𝐧𝐭 = 𝟏 − [
𝟏
𝟏 + 𝑪𝒐𝒏𝒕𝒓𝒐𝒍 𝑷𝒓𝒆𝒎𝒊𝒖𝒎
]
Our results are shown on the nest page:
Median Implied Minority Discount from the Mergerstat Study= 23.4%

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Mergerstat®/BVR Control Premium Study Results

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2. Use of Historical Court Rulings in Conjunction with the Subject’s Interest
Attributes. Citing Shannon P. Pratt’s book “Discounts and Premiums” Second Edition
Chapter 4, pages 101 to 103, he lists twelve (12) court cases involving Gift, Estate, and
Income Tax proceedings where a DLOC was accepted by the courts:
a. Estate of Barudin v. Commissioner; 19%
b. Estate of Weinberg v. Commissioner; 37%
c. Gow v. Commissioner; not mentioned.
d. Estate of Smith v. Commissioner; 32% and 50%
e. Estate of Jones v. Commissioner; 40%
f. Estate of Jelke v. Commissioner; 10%
g. Estate of Green v. Commissioner; 17%
h. Estate of Thompson v. Commissioner; 15%
i. Hess v. Commissioner; not mentioned.
j. Adams v. United States; 20%
k. Temple v. United States; up to 10.1%
l. Robertson v. United States; 19%
Statistics:
 Max: 50%
 Min: 10%
 Median: ~20% (after removing the largest two values, 40% and 50%)

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3. Our Conclusion for DLOC
I. Median value from Mergerstat: 23.4%
II. Median value from Historical Court case listed above: 20%.
Therefore, we shall use the median value of 20% as our center (or median
value) in order to assign a DLOC for our Subject. The range shall be between 10%
and 30%; see diagram below:
A discount of 10% shall be applied since the ownership interest being valued and
owned by the client or user(s) is 50%- 50% ownership.
1. 100% Ownership
2. Ownership sufficient to liquidate, merge, etc.
3. 51% operating control
4. 50% -50% ownership (10% DLOC)
5. Less than 50%, but the largest block of stock ownership (15% DLOC)
6. Less than 50%, but with swing vote powers (20% DLOC)
7. Less than 50%, but with cumulative voting powers (25% DLOC)
8. Pure minority (30% DLOC)
Non-Control Interest
Control Interest

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SHAREHOLDER-LEVEL DISCOUNT FOR LACK OF MARKETABILITY (S-DLOM)
Discount for Lack of Marketability (DLOM) at the Shareholder level shall be referred to in this
report as S-DLOM. It applies to an individual or specific group of shareholder(s) of the Company
who lacks voting rights in the decision making process regarding day-to-day business operations
and capital structure.
This discount is present simply due to the fact that a non-controlling interest in practically any
business, public or privately held, without access to a public market (i.e., “non-marketable”) is
more difficult to sell and is worth less than the same interest in the exact same company with
access to a public market (i.e., “marketable”). What’s more, the discount is time sensitive; the
longer a public market is not available, the larger the S-DLOM. In other words, take the market
access away and there shall exist a discount. Moreover, the longer the public market access is
denied, the larger the discount.
Since there is no such database of transactions of minority interest in Private Closely Held
Businesses (CHBs), in order to derive the minority, non-marketable, value of a CHB, we start with
minority, non-marketable value of Restricted Stocks in public Companies since this data does exist.
In our report the foundation of the S-DLOM, as it relates to CHBs, is based on the evidence of
discounts ascertained in studies of publicly available transaction data of restricted stock sales of
public companies that are subject to the “dribble-out provisions” of SEC Rule 144.
In particular, this valuation employs the FMV Restricted Stock Study TM (see Appendix: Companion
Guide to the FMV Restricted Stock Study TM) which utilizes a Restricted Stock Comparative Analysis
Approach (RSCAA) to calculate our Subject’s S-DLOM. See Diagram below on page 24 of this report
illustrating how the FMV Data ultimately leads to our CHB S-DLOM.
Highlights of the FMV Study (page references are to the Companion Guide in the Appendix):
1. Brief history and discounts allowed in prior court cases; page 4.
2. Why RSCAA is the preferred approach; pages 4-5.
3. SEC Rule 144; pages 6-7.
4. Description and Criteria of the FMV Study; page 10.
5. Exemplifying how Degree of Liquidity correlates to time before public market accesses is
available. The study shows that there is a profound decrease in company stock value due to
the removal of public market access, whereby stock liquidity and marketability is reduced.
Note that in Exhibit 7, larger block sizes which are subject to longer hold periods per the
SEC Rule 144 “dribble-out provision” experience larger discounts; page 13.
6. FMV’s Discount Determination Methodology (bases of the FMV calculator which is utilized
in our report; “going from restricted shares in marketable minority to private equity”);
pages 16-23.
7. Case Study of the use of the FMV Calculator utilized in our Report to derive the final
discount; pages 26-29.

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How this Report Utilizes the FMV Restricted Stock Study TM Calculator
Step 1: Calculate the Restricted Stock Equivalent Discount (RSED)
To be in compliance with RR 77-287 (section 6) and prior court case rulings relative to DLOM (e.g.,
Mandelbaum v. Commissioner, Temple v. US, etc.), the FMV calculator allows the analyst to align
and compare seven (7) of the Subject’s key financial metrics with matching data from the
Restricted Stock Transactions (FMV Data).
a. We begin by entering our Subject’s key metrics:
Notes:
1. We have decided not to use “Volatility” as one of our metrics. This may yield a lower DLOM.
2. FMV Opinions, Inc. suggests (see Exhibit 6 page 12 of Guide) that the type of business has less of
an impact on DLOM than a company’s financial characteristics, especially Total Assets, Market
Value of Equity, and Shareholders’ Equity.

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b. FMV Calculator does a Financial Characteristic Comparison:
i. The FMV Data is sorted by Discount into five (5) equal Quintiles (percentage groups). See
Exhibit 5 in Companion Guide in Appendix.
ii. Then each of the Subject’s seven (7) key metrics (revenues, total assets, market value of
equity, shareholders’ equity, market-to-book ratio, net profit margin, and volatility) is
matched with the closest FMV Data Quintile.
iii. Furthermore, the analyst is able to weight each of the seven key metrics. FMV suggests
weights as well; in most cases, the key variables are market value, total assets,
shareholders’ equity and volatility. However, the analyst has the final choice based on
knowledge of the Subject and circumstances surrounding the valuation.
iv. The results yield an “Indicated Restricted Stock Equivalent Discount” or IRSED of 22.7%.
At this point this is merely an indication, i.e., a data point the analyst can consider.
Notes:
1. At this point, only smaller block placements are included

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c. The FMV Calculator also does a Best Comparison Analysis.
i. The FMV Calculator also presents the results in a manner that allows the analyst choose a “best
comparison” of the subject key variables with the FMV Data. This is done by aligning the
number of FMV Data transactions with the maximum number of matching financial metrics. In
this case the analyst may choose 26.7% since twenty-seven (27) FMV Data Transactions
match four (4) of the Subject’s key metrics. Note that only one (1) transaction matched five (5)
of the metrics, while 457 transactions matched only one (1) metric. FMV Opinions, Inc.
recommends you choose the most matches with at least 10 transactions.
ii. The results yield an “Indicated Restricted Stock Equivalent Discount Range” or IRSED Range.
Again, at this point this is merely an indication, i.e., a data point the analyst can consider.

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d. Our Choice of the Subject’s Restricted Stock Equivalent Discount (RSED):
i. At this point, using the results of the Financial Characteristics Comparison and the Best
Comparables Analysis, the Analyst can choose which value best reflects the Restricted Stock
Equivalent Discount (RSED).
ii. In this particular case the Financial Characteristics Comparison (item b., iv of this section)
yielded 22.7%. Also, as we noted above (item c. i. of this section) from the Best Comparable
Analysis 26.7% is a reasonable choice. Therefore, we shall use the median value of these two
results as our Subject’s RSED- 24.7%.

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Step 2: Calculate the Private Equity Discount Increment
Compared to companies with access, or imminent access, to public markets, interests in privately
held companies (private equity) are generally subject to significantly greater illiquidity.
Consequently, in order to derive a more accurate DLOM for a CHB, the FMV Study Calculator has
the ability to show what could happen if access to a public market is prolonged. This is
accomplished by the analyzing larger block sizes of restricted stock placements. Note that in
Exhibit 7 (Page 13 of Study Companion Guide), larger block sizes which are subject to longer hold
periods per the SEC Rule 144 “dribble-out provision” experience larger discounts; page 13.
Analysis of the larger block placements leads to what is known as a Private Equity Discount, PED.
The incremental amount greater than the RSED, calculated above in Step 1, is known as the Private
Equity Discount Increment, PEDi. Important to note, however, that in certain cases a particular
subject interest may be considered to possess similar or even improved liquidity over typical
restricted securities in public companies. Under these more rare circumstances, a downward
adjustment to the RSED may be warranted.
Per the FMV Study Companion Guide,
“While the average private firm tends to be riskier than the average public firm, the FMV Study
issuers also tend to be more risky than the average public firm. Carefully analyze where the
subject private firm fits within the data set across the relevant parameters. For larger private
companies, the analysis may indicate that the subject company is less risky than the average
firm in the FMV Study, which may indicate a lower DLOM.”
To that end, rather than completely relying on the FMV Calculator’s final Private Equity Discount
Increment (PEDi) to calculate our CHB’s S-DLOM, to be more thorough and conservative, we take
the process one step further by “modulating” the FMV PEDi using more of the Subject’s specific
liquidity attributes; it is our opinion that this final step further reflects and emphasizes adherence
to the recommendations of FMV Opinions, Inc., the guidelines of prior court case rulings, as well as
the IRS Revenue Ruling RR 77-287. That is, the proper, most effective way to utilize Restricted
Stock Study Data in calculating a CHB’s S-DLOM is to consider and incorporate as many of the
Subject’s key liquidity characteristics with the empirical data used in the studies.

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Step 3: Calculation of the Subject’s S-DLOM using MUM
Furthermore, “whether the valuation is under the federal rules of evidence or state-adopted
and/or -modified federal rules, or independently established rules of evidence, generally there is a
threshold that the expert must climb over (as in the Daubert v. Merrell Dow Pharmaceuticals, Inc.,
509 U.S. 579) or an ability to show general acceptance of methods (as in states still under Frye,
such as Illinois).”3 With this in mind, we utilize a mathematical, scientific method known as Multi-
Attribute Utility Method (MUM) in order to “modulate” the results from the FMV Calculator. The
attributes used in the FMV Calculator as well as in our MUM model are all peer reviewed and
recognized by business valuation experts.
Utility Scoring Scales
Expected Alternatives
3 (2012-08-24). BVR's Guide to Personal v. Enterprise Goodwill). Business Valuation Resources.
0 Weak Presence
1 Below Average
2 Moderate Presence
3
4
Above Average
Strong Presence
Existence Utility (EU)
1 Least Important
3 Moderately Important
5 Most Important
Importance Utility (IU)
Alternatives Subject PEDi Multiplier
1 0% to 20% 80% to 100% 10%
2 20% to 40% 60% to 80% 30%
3 40% to 60% 40% to 60% 50%
4 60% to 80% 20% to 40% 70%
5 80% to 100% 0% to 20% 90%
Subject PEDi Multiplier
% Increase PED Increment % Decrease PED Increment

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Subject’s PEDi Total Multiplicative Utility Breakdown

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Explanation of the Subject’s Utility Scores

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ASSETS & LIABILITIES ALLOCATION (USING THE INCOME APPROACH)
The Operating Assets includes only the Tangible and Intangible Operating Assets as listed below. The table below shows value for
100% ownership, i.e., before any discounts.
Comments
Book Recast
These are assets that are necessary to generate the earning when using the "Income Approach."
Example: FF&E, Patent, Land (if Rent is $0 in special cases), etc.
Furniture, Fixtures & Equipment $120,570 $120,570 Net Book Value
Leashold Improvements $123,556 $123,556 Net Book Value
Intanigible Assets $37,138 $0 Recast to $0; recalculated below
Acc. Amortization $2,801 $0 Recast to $0; recalculated below
Total Tangible Operating Assets: $284,065 $244,126 Tangible Operating Asset component of the overall Operating Assets for 100% controlling interest
Intangible Operating Assets Due to BGW (70% of overall Goodwill) $0 $16,826
Intangible Operating Asset component of the overall Operating Assets for 100% controlling interest
due to Business or Enterprise Goodwill
Intangible Operating Assets Due to PGW (30% of overall Goodwill) $0 $7,211
Intangible Operating Asset component of the overall Operating Assets for 100% controlling interest
due to Personal or Professional Goodwill. We call this the "Carve out" if the PGW cannot be
transferred.
Total Operating Assets: $284,065 $268,163
Book Recast
Inventory $4,144 $4,144
Cash $63,310 $63,310
Receivables $111,353 $1,004 Shareholder loans moved to equity
Deposits $2,695 $2,695
Other Assets $0 $0
Total Non-Operating Assets: $181,501 $71,152
Total Liabilities ($138,725) ($138,725)
Total Non-Operating Assets and Liabilities: $42,776 ($67,573)
These Assets & Liabilities are not necessary to generate the SDE. Thus, typically with the exception
of inventory, they may be excluded in the sale if the transaction were an "Asset Sale."
Allocation of Assets being Valued or Included in the Transaction as of 12-31-2013 (Most recent year end (Income Approach))
Operating Assets
Non-Operating Assets (+) & Liabilities (-) Included

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FINANCIAL STATEMENT/INFORMATION ANALYSIS
HISTORICAL INCOME & EXPENSES SUMMARY
The following data was taken directly from the Owner’s Tax Returns and P&Ls. All small expenses
where consolidated in the row called “Other Expenses <$3k.”
Period & Source
FY13 P&L thru 12-31-
2013
FY13 P&L
Annualized
FY12 Tax Return FY11 Tax Return FY10 Tax Return
Total Income $592,639 $592,639 $573,614 $558,060 $585,610
Deductions
COGS (less Direct Labor) $140,308 $140,308 $142,510 $156,529 $154,764
Salaries and wages $165,277 $165,277 $158,250 $179,357 $182,606
Rent $40,874 $40,874 $40,692 $38,086 $35,979
Accounting $2,281 $2,281 $2,271 $2,196 $1,946
Janitorial $910 $910 $760 $768 $798
Taxes & Licenses $19,909 $19,909 $20,502 $24,602 $15,468
Supplies $1,502 $1,502 $2,140 $3,733 $5,605
Interest $9,576 $9,576 $11,132 $11,932 $13,820
Royalties $36,336 $36,336 $34,445 $33,064 $35,028
Merchant Acct. Fee $9,480 $9,480 $8,912 $8,036 $8,357
Advertising $19,786 $19,786 $18,728 $26,079 $18,964
Rep. & Maint. $6,879 $6,879 $5,008 $8,814 $4,664
Printing $283 $283 $1,181 $1,987 $1,551
Telephone/Internet $3,525 $3,525 $3,764 $3,280 $3,360
Amortization $0 $0 $0 $4,338 $7,436
Consulting $3,190 $3,190 $2,828 $9,195 $10,354
Insurance $7,132 $7,132 $4,900 $4,300 $4,532
Utilities $19,704 $19,704 $19,917 $24,282 $23,121
Catering Fees $0 $0 $0 $0 $4,839
Uniforms $386 $386 $2,800 $2,717 $2,159
Net Depreciation $0 $0 $12,239 $12,858 $12,651
Auto & Truck $278 $278 $9,968 $8,555 $10,806
Misc. $2,539 $2,539 $2,164 $355 $283
Other Expenses <$3k $2,065 $2,065 $3,043 $2,623 $2,594
Total Deductions $492,219 $492,219 $508,154 $567,686 $561,685
Pre-Tax Profit $100,420 $100,420 $65,460 ($9,626) $23,925

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SELLER’S DISCRETIONARY EARNINGS CALCULATION
The income approach using the Seller’s Discretionary Earnings (SDE) is used to value this company. SDE
represents the net earnings before interest, income taxes, depreciation and amortization. In addition, it
includes all owner perks, discretionary expenses, and elimination of all non-recurring income and
expenses. SDE is normalized to only one full-time working owner equivalent (FTE) who works 40 to 50
hours each week. Each of these expenses is “Added-Back” to the Pre-Tax Profit shown above in the
Historical Income Summary section in order to calculate the Seller’s Discretionary Earnings, SDE. After all
the “Add-backs” are applied, the results are the Recast, Normalized SDE, which are shown at the bottom
of the following Table.
What’s more, all normalized income and expenses are shown in the graphs that follow in the Normalized,
Recast, Income & Expenses Graphs section. The graphs provide a high-level, visual perspective of the
Company’s historical income and expenses trends from year to year.
Pre-Tax Profit
FY13 P&L thru
12-31-2013
FY12 Tax Return FY11 Tax Return FY10 Tax Return Explanation
Unadjusted Pretax Profit $100,420 $65,460 ($9,626) $23,925
Add-Backs
Salaries and wages $36,484 $36,484 $36,484 $37,887
W2 Compensation for both Mr. Byrne and McKey as
they make up 1 FTE owner/operator
Interest $9,576 $11,132 $11,932 $13,820 Interest
Net Depreciation $0 $12,239 $12,858 $12,651 Depreciation
Auto & Truck $278 $9,968 $8,555 $10,806 Owner Benefit
Insurance $1,847 $0 $0 $0 Owner Benefit
Telephone/Internet $2,073 $2,301 $1,992 $2,333 Owner Benefit
Amortization $0 $0 $4,338 $7,436 Amortization
50% Meals & Ent. $267 $288 $265 $621 Owner Benefit
Total Add-Backs $50,525 $72,412 $76,424 $85,554
SDE through 12-31-2013 $150,945
Normalized SDE (Annual) $150,945 $137,872 $66,798 $109,479

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NORMALIZED, RECAST INCOME & EXPENSE GRAPHS
INCOME GRAPH

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GROSS PROFIT AND SDE MARGINS GRAPH

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TAX RETURN FRONT PAGE EXPENSES GRAPH

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TAX RETURN SCHEDULE A GRAPH

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TAX RETURN SCHEDULE A OTHER COGS GRAPH

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TAX RETURN OTHER DEDUCTIONS GRAPH

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DETERMINING THE EXPECTED MULTIPLE & CAP RATE
To assess the risk for a business buyer we calculate an expected return on investment that we call
Expected CAP Rate. It is reflective of the return on investment a business Buyer would expect to
achieve if we capitalize the Company's SDE; it is a figure of merit to measure Risk for an investor. The
Expected Cap Rate depends on A) the type of company we are valuing and B) the risks within the
subject Company we are valuing.
We calculate a “Market-Derived” Capitalization Rate. Our "build-up" method to calculate the Expected
CAP Rate starts by first choosing a Range of SP/SDE Multiples taken from sales transactions of
“similar” companies (“Comps”) to the Subject Company. For example, if we are valuing a medical
practice, then we will use Comps of medical practices that sold in the past ten years. This is done by
using transactional data from actual, similar sold businesses (Comps) from BizComps database (Note:
CAP Rate is the inverse of SP/SDE multiples). Thus, the "Range" (floor and ceiling) is set by the Comps
shown below in List of Comparables (Comps) section.
In our case we chose our comps using the criteria listed below in “The Comparables (Comps)” Section.
For our valuation of the Company, we found 15 records where the lowest SP/SDE Multiple was 1.04
(highest CAP Rate 96%) and Highest SP/SDE Multiple was 2.4 (Lowest CAP Rate 42%).

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THE COMPARABLES (COMPS)
General
The comparables used were assimilated from BIZCOMPS database. A detailed list of the comparables
is shown below in the List of Comparables (Comps) section; the statistics of the transactions are
compiled below on this page. A statistic of interest is the SP/SDE ratio; this represents the Sale Price-
to-SDE of the companies sold, and is referred to as “The Multiple.” The criteria of the comparables are
as follows:
a. The filter criteria were:
i. Companies with the following characteristics:
1. Fast Food Ice Cream Businesses
2. Sold in Florida since 2007
3. SIC Codes: 5812.16
ii. All outliers were removed until the mean and median of the SP/SDE (Sale
Price to SDE) ratio were approximately equal.
b. Summary of Stats:
i. 15 records. Actual businesses sold.
ii. SP/SDE Mean of 1.52 & Median of 1.46; implies all outliers have been
removed.
iii. R2 value of 0.89; implies a very good relationship between SDE and Sale Price.
See the following “Sales Price to SDE” graph in “Graphic of Comparables
Business & Subject Company” section.
Notes:
1. Mean and Median are almost equal by removing all “unusual transactions,” i.e., outliers.
2. The comps treat inventory, real estate, A/R, A/P as non-performing assets. Thus “Sale
Price” or “SP” does not include these items.
Revenue SDE Sale Price Sale Price / SDE FF&E Inventory
Low $119 $30 $55 1.04 $10 $0
High $434 $178 $200 2.40 $150 $15
Mean $242 $68 $94 1.52 $56 $4
Median N/A N/A N/A 1.46 N/A N/A
Standard Deviation $105 $42 $42 0.44 $38 $4
Count 15 15 15 15 15 15
Comps Selected

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LIST OF COMPARABLES (COMPS)
SIC NAICS Business Description Revenue SDE Inventory FF&E Rent/RevenueFranchise RoyaltyEmployeesAsking Price Price Price / Revenue Price / SDE Down Pmt Terms Days on Mkt Sale Date Location
5812.16 722211 Fast Food- Ice Cream 191 42 1 12 No 3 75 69 0.36 1.64 100% 120 5/1/2013 Florida
5812.16 722515 Fast Food-Ice Cream 142 54 4 70 14.0% No 1 FT / 2 PT 125 79 0.56 1.46 100% 81 8/18/2010 Florida
5812.16 722515 Fast Food-Ice Cream 231 55 1 114 15.0% No 4 FT / 3 PT 129 68 0.29 1.24 811 8/12/2010 Florida
5812.16 722211 Fast Food-Ice Cream 402 178 0 65 No 2 400 200 0.50 1.12 100% 204 1/31/2011 Florida
5812.16 722211 Fast Food-Ice Cream 302 103 8 50 No 5 PT 199 160 0.53 1.55 10/20/2010 Florida
5812.16 722211 Fast Food-Ice Cream 233 52 3 150 31.0% No 1 FT / 4 PT 116 82 0.35 1.58 100% 3/11/2010 Florida
5812.16 722211 Fast Food-Ice Cream 279 72 15 15 8.7% No 1 125 90 0.32 1.25 100% 7/1/2009 Florida
5812.16 722211 Fast Food-Ice Cream 346 115 10 75 22.5% No 3 FT / 4 PT 140 125 0.36 1.09 67% 5 Yrs @ 7.5% 3/31/2009 Florida
5812.16 722211 Fast Food-Ice Cream 346 115 5 75 No 4 145 135 0.39 1.17 67% 3 Yrs@ 7% 461 3/31/2009 Florida
5812.16 722211 Fast Food-Ice Cream 434 53 5 50 Y-10% 1 FT / 10 PT 59 55 0.13 1.04 100% 280 1/30/2009 Florida
5812.16 722211 Fast Food-Ice Cream 119 30 3 33 No 4 PT 76 72 0.61 2.40 40% 3 Yrs @ 7% 138 9/30/2008 Jacksonville, FL
5812.16 722211 Fast Food-Ice Cream 119 30 4 33 20.0% No 1 FT / 4 PT 75 71 0.60 2.37 40% 2 Yrs @ 7% 135 8/11/2008 Florida
5812.16 722211 Fast Food-Ice Cream 172 33 1 10 6.6% No 3 PT 79 67 0.39 2.03 100% 114 11/30/2007 Florida
“Multiple”SDE Sale Price

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GRAPHIC OF COMPARABLE BUSINESS & SUBJECT COMPANY
The following is a graphic representation of our opinion of the subject Company’s Operating Assets value
relative to the comparable businesses as it relates to Sale Price vs. Seller’s Discretionary Earnings, SDE. It
represents the Company values without any of the non-performing assets such as real estate, A/R,
Inventory, etc.

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ENTERPRISE RISK FACTORS
Once we have the “Range” of CAP Rates chosen, then to continue our calculation of the Expected CAP Rate,
which is within that "Range," we analyze the Subject Company's "Risk Factors" to determine where
within our "Range" our Expected Cap Rate should fall; for instance, If the subject Company exhibits low
risk characteristics due to there being very little owner personal goodwill and no significant customer
concentration, then the Expected CAP Rate will be lower since the risk is lower. What’s more, the
Expected CAP Rate will approach the low side of the "Range."
Based on our professional judgment and experience in selling businesses and performing business
valuations, we have determined that following major risk factors influence the value of a business
enterprise. These Enterprise Factors are shown in the table below and explained in detail in the next
section called Risk Factors Details.
In order to quantify the Subject Company’s risk, a weight was assigned to each Enterprise Factor based on
importance (rank) for that type of company, while a risk assessment score (1 to 4) was simultaneously
applied to each Enterprise Factor in order to calculate the “weight” or “effect” on Expected CAP Rate. See
section table below and section called Effect of Risk Factors on Company Value.
Note that a score of “1” implies most risk and “4” implies least risk, while “2.5” is nominal. What’s more, a
rank score of “7” implies that for this particular type of company (Subject) this Enterprise Factor is the
least important (e.g., for a restaurant, location could be ranked 2 or 3 in importance vs. a manufacturing
business, which could have a rank of 6 or 7).
The combination of Rank and Risk Assessment are used to quantify where within our Comps’ Range our
“Expected Multiple” or “Expected CAP Rate” for the Subject Company shall lie.
The following sections describe in detail our assessment of the Subject Company’s characteristics relative
to each of the Risk Factors.
Risk Assessment
(1-worse; 4- best)
1 Business Dependency on Seller 2.9 47
2 Sales & Earnings Stability 2.8 20
6 Performing Assets & Build out 3.0 11
4 Location & Facilities 4.0 9
7 Company History Assessment 2.5 6
3 Sales and/or Earnings Trend 4.0 4
5 Supply & Demand (Marketability) 2.5 3
Expected Multiple 1.9
Expected CAP RATE 52%
Rank (importance) Enterprise Risk Factor Weight

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GOODWILL (PERSONAL VS. BUSINESS) RISK FACTORS
The Comps' The Comps'
Lowest SP/SDE Highest SP/SDE
Comparables "Range" from BIZCOMPS 1.0 1.1 1.2 1.2 1.3 1.4 1.4 1.5 1.6 1.7 1.7 1.8 1.9 1.9 2.0 2.1 2.1 2.2 2.3 2.3 2.4
1 1.2 1.3 1.5 1.6 1.8 1.9 2.1 2.2 2.4 2.5 2.7 2.8 3.0 3.1 3.3 3.4 3.6 3.7 3.9 4
Expected Multiple (SP/SDE) after Appling Risk Scores= 1.9 52%
Note: 1,2's are negs while 3,4's are positives; 2.5 is no change off center
We ights
(1 -7 ) Risk Factors
Risk Score (1 -
4 )
1 Enterprise vs. Personal Goodwill 2.9
Owner's Involvement and Presence/Management Structure
4- Absentee (<10 hrs./week), manager(s), multiple employees
3- Part-time (< 30 hrs./week), manager(s), multiple employees
2.5- Full-time (>40hrs/week), manager(s), multiple employees
2- Full-time (>40hrs/week), no manager(s), multiple employees
1- Full-time (>40 hrs/week), no managers, no employees
2.5
Owner or Key Employee(s) Interaction w/ customers
4- Owner does not interact with any current customers directly or indirectly
3- Owner interacts with some current customers, but none large (i.e., >10% revenue)
2- Owner interacts with some the large current customers (i.e., >30% revenue)
1- Owner interacts with large customers (i.e., >50%)
3.0
Owner or Key Employee(s) Involvement in critical roles?
4- No sales, No bidding, or No operations; No management of any kind
3- No sales, No bidding, No operations. Does have oversight of managers in these areas
2- Does outside sales, bidding, but no cold calls
1- Key salesman and does cold calls
2.5
Do the inbound referrals go to the owner or the company?
Consider the following:
4- All referrals go to the company; most customers do not know the owner
3- All referrals go to the company; many customers do know the owner
2- Some referrals go to the owner directly
1- Most referrals go to the owner directly
2.5
Evidence of Personal or Business Reputation
Consider the following:
a. Owner have a CV with references from referral sources;
b. Public testimonials for owner or the business
c. Has the owner won any industry or peer awards?
d. Would a CNTC be very important?
e. Could the business be sold easily, or difficult due to the perceived owner's
PGW?
2.5
Business trade name (D/B/A) impact the business?
4- The name will help a new owner significantly
3- The name will help the new owner somewhat
2.5- Does not Matter either way
2- Could hurt the new owner
1- Will definitely hurt the new owner
4.0
Advertising or Outside/Inside Sales Expenditures
4- Greater than 15% or $50K, or have established sales force or distributors
3- Greater than 10% or $20K
2- Greater than 3% or $10K
1- Spends less than 3% or $5K and no sales force
3.0
47
Moderately Low vs. Comps
Comps' Highest CAP Rate is 96% Comps' Lowest CAP Rate is 42%
Factors Notes
Owners: Chip - Pres owns 25% handles books and admin duties, averages 15-20 hrs per
week on the business. John - VP owns 25% functions as the GM. Is in the store 3 times
per week, works a total of 20-30 hrs per week on the business. Chip and John's wives
each own 25% of the business but do not work in the business.
Key employees include
1)Nanct; Mgr: ; works 40 per wk; length employment: 5 yrs; pay: $30k/yr.
See above
Brand fund is 3% paid to franchisor, averages $20k/yr
Brand is well known and considered higher quality.
Mgr does have some interaction with customers, owners(John) has minimal contact with
customers
Since we used similar comps
Since we are using similar comps
Assess. Weight
134.3
Rank Weight
Nominal CAP Rate is 58%
Expected CAP Rate= Since Risk Level is
52

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SALES STABILITY RISK FACTORS
2 Sales & Earnings Stability 2.8
Number of unique, unrelated customers annually?
4- Thousands
3- Hundreds
2- Tens
1- Less than 19
2.5
Note: Pick Comps first; then make all "common denominators" equal to 2.5
Customer/Supplier/Sales Person Concentration
4- Virtually no concentration
3- Some Concentration
2- Moderate Concentration
1- High Concentration
2.5
How much of the revenue is recurring?
4- At least 50%
3- At least 25%
2- less than 10%
1- None
2.5
Howmany years have sales or earnings been within +/-15%?
4- Four Years
3- Three Years
2-Two Years
1- Not in past 4 years
4.0
The Company's dividend or growth capacity (per IRS RR 59-60)
4- Company has had the capacity for 4 of the past 4 years AND Trending UP
3- Company has had the capacity for 3 of the past 4 years AND Trending UP
2-Company has had the capacity for 2 of the past 4 years OR downward trend
1- Company has not had the capacity in the past 4 years OR Significant downward trend
3.0
Market Stability
4- Very stable & expect no long-term slowdown
3- Very stable now, but not sure in long-term
2- Unsure based on current economic indications
1- Unsure based on current economy
2.5
N/A since we are using same comps
56.720
This is the amount of funds (net income) remaining to meet all demands in support of
future growth (e.g., working capital, capital expenditures). The measure known as "net
cash flow to equity" is often considered a proxy for "dividend paying capacity" in regards
to RR 59-60 as it represents the cash flow available to equity holders, i.e., potential
dividends.
Economy appears to be on the rebound
See sales & Earnings Graph; 2010 through 2013.

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OTHER RISK FACTORS
6 Performing Assets (FF&E)
FF&E Current Value vs. Comps' or Condition of FF&E 3.0
4- > 75% of asking price and/or Excellent Condition
3- > 75% of asking price and/or Very good Condition
2- < 25% of asking price and/or Poor Condition
1- < 25% of Asking Price and/or in Very Poor Condition or nearing obsolescence
We ights
(1 -7 )
4 Location & Facilities
1- Poor
2- Bad
2.5- Not Bad
3- Good
4- Excellent
4.0
We ights
(1 -7 )
7 Company History Assessment
1- Company is less than 2 years old
2- Recent Start-up Company/Not Well Established (less than 4 years)
2.5- Established Company/Good Customer Base (4-9 years)
3- Well Established Company/Good Customer Base (10-15 years)
4- Long Record of Successful Business/Strong Customer Base(16+ years)
We ights
(1 -7 )
3 Gross Revenues and SDE Historical Trends
4- Gross and SDE Avg % Δ > 20%
3- Gross and SDE Avg % Δ > 10%
2- Either Gross or SDE Avg % Δ Declining >10%
1- Either Gross or SDE Avg % Δ Declining >20%
We ights
(1 -7 )
5 Supply & Demand (Marketability)
1- Unique or niche business; buyer base extremely limited
2- Unique or niche business; buyer base is somewhat limited
2.5- Moderately desirable, main street business; good buyer base
3- Desirable business; buyer base is broad
4- Extremely desirable business; buyer base very broad
Su m of we igh te d fa ctors
Me diu m Bu sin e ss Fa ctor (We igh te d)
FF&E is book value ~$120k. Note: mean of comps is $56k, owner estimates condition is
fair. Recent sale of similar assets at Trinity store $4800
Operates out of 1218 sqft space located next to one of two movie theaters in town.
Location would be considered excellent, a 4 is justified.
Historical avg. % Gross has increased ~2% and Avg % SDE has increased ~40%.
I believe this is a mainstreet business, with a recognizable name that will have a good
buyer base. The fact that it is a franchise may be a negative with some buyers and for
that reason I will award a 2.5.
Another point why a 2.5 is justified is that the Lakeland area is not a attractive to Buyers
than a larger area (e.g., Tampa, Orlando).
4
3
9
15
305.5
3.055
36
11
2.5
4.0
100
7.5
44
6
2.5
Franchisor started in 1987, this franchise opened in 2006
12

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EFFECT OF RISK FACTORS ON COMPANY VALUE
The Graph below shows graphically the most influential risk factors contributing to the subject
Company’s Expected CAP Rate or Multiple. Note: Since the “Multiple” is the inverse of the CAP RATE
either could be used to assess risk.

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RECONCILIATION OF CONCLUSION OF VALUE (SANITY CHECK)
To best reconcile our conclusion of value against reality, we shall consider some of the typical calculations
that may be performed by hypothetical Buyers and Lenders in an actual business acquisition.
The two most common scenarios for a business acquisition are the following:
1. An unleveraged acquisition; this is where a Buyer buys the business without financing.
2. A leveraged acquisition; this is where a Buyer would secure financing from a third party lender or
through the Seller via a Seller-Held Note.
Thus in order to reconcile our business valuation against these two real-life circumstances, the following
“pressure points” are analyzed, namely- Historical Capitalized Earnings, Historical Net Margins, Before-
Tax Cash Flow using historical SDE, and Debt Service Ratios a lender would consider. In addition,
Personal Goodwill and Customer Concentration also could become very influential.
Regardless of the valuation, it is these “pressure points” that directly impact a Buyer and Lender’s final
decision.
For the Subject Company, the most significant pressure points appear to be:
1. CAP RATE in 2011.
2. Margins from 2011.
3. Cash Flow in 2011.
4. Debt Service Ratio for 2011.
See more details below.

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CAPITALIZED EARNINGS
With any investment of any kind, investors will base their decisions whether to invest, and how much to
invest, on the risk level and their personal involvement necessary to manage that investment. For
instance, if an investor has $1 Million to invest, but she does not want work and wants to assume minimal
risk, then a CD or Bond may be the best investment, but the ROI will be very low, probably 2% or 3%. If,
however, the investor would like a better return on her $1 Million as she is willing to assume a more risk
and be more involved (but not 40 to 50 hours per week), she may consider buying investment property,
where she could expect 6% to 12% ROI, i.e., CAP Rate. Finally, if the investor expects an even higher ROI,
she may consider buying a business, where the risk is much higher, as would be her required
involvement in the management of the “investment.” This is where the “Expected CAP Rate” comes in; it is
the ROI that is “expected” for the high level of risk and involvement inherent to businesses. What’s more,
since the risk is so much higher than a CD, bond, or investment property, the “Expected CAP Rate” is
much higher, e.g., 20% to 200%, depending on the type of company and internal risks within the
Company.
Below we compare the historical Subject Company’s performance against our Expected CAP Rate.
Notes:
1. At the Subject Company’s Operating Assets value of $268,163 the 2011 CAP Rate drops below our
Comps’ range, i.e., 25% compared to 42%.
Capitalized Earnings
>
CAP Rate Ran ge ch osen for th is valu ation is from 44% (lowest Risk) to 96% (h igh est Risk)
Expected CAP Rate is 52% sin ce Risk Level is Moderately Low vs. Com ps
Weigh ted Su bject Co. CAP Rate= 52% Usin g wSDE
Cu rren t year Su bject Co. CAP Rate= 56% FY13 P&L
Worse case Su bject Co. CAP Rate= 25% FY11 Tax Retu rn
Best case CAP Rate= 56% FY13 P&L
For th a t pe riod, th e su bje ct Co. CAP Ra te is a bove th e Expe cte d CAP Ra te of 52%
For th a t pe riod, th e su bje ct Co. CAP Ra te is be low th e Expe cte d CAP Ra te of 52%
For th a t pe riod, th e su bje ct Co. CAP Ra te is ou tside th e Com ps' ra n ge of 42%
"Expe cte d CAP Ra te " is th e re tu rn on in ve stm e n t a Bu ye r wou ld e xpe ct to a ch ie ve if we ca pita lize th e Com pa n y's SDE; it is a figu re of m e rit to m e a su re Risk for a n in ve stor. It de pe n ds on A) th e type of
com pa n y a n d B) th e risk with in th e su bje ct Com pa n y.
25%
52%
56%
0%
10%
20%
30%
40%
50%
60%
Historical CAPRates vs.Expected CAPRate
52%
• ExpectedCAPRate
for theSubject
Company
8%
• Nominalfor Real
Estate
3%
• Nominalfor CDor
Bond

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NET MARGINS
In general, notwithstanding our Subject Company, a Net Owner Benefit Margin (i.e., SDE/Rev) less than
10% is a concern; 10% to 15% we consider marginal; and greater than 15% we consider healthy. The
reason is that a business that operates with small margins has greater risk of having cash flow problems
in the event of unforeseen circumstances such as costs increases, overhead increases, etc.
However, to properly assess margin risk for our Subject Company, we compare our Subject Company to
our Comps’ margins.
Notes:
1. The Comps’ Mean margins are higher. Note that 2011 Margins were 12%.
Historical Margin Analysis
> Ne t Own e r Be n e fit m a rgin SDE/ Re v <10% is a con ce rn ; 10% to 15% m a rgin a l; 15%+ h e a lth y (se e BizCom ps Sta ts to com pa re )
cu rren t year Net Profit Margin = 2 5 % FY13 P&L
worse case Net Profit Margin = 12 % FY11 Tax Retu rn
Best case Net Profit Margin = 2 5 % FY13 P&L
Mean SDE/ REV of Com ps= 2 8 %
12%
25%
0%
5%
10%
15%
20%
25%
30%
Net Margin Range

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BEFORE-TAX-CASH FLOW
Assuming a leveraged acquisition, the Before-Tax Cash Flow (BTCF) becomes a pressure point that a
Buyer must consider. Typically BTCF becomes more relevant in an acquisition where a large amount of
non-performing assets are also sold with the company or necessary to operate the Company. The most
common case is when a large amount of Inventory or operating capital is necessary.
Below are Typical Terms that one may expect for this acquisition of this Company. The Sale Price is
comprised of the Operating Assets plus Inventory.
Notes:
1. At the Subject Company’s Operating Assets value of $268,163 plus inventory at $4,144 the 2011
BTCF is significantly different from the subsequent years, i.e., $34,469.
2. If the Company continues on its growth path, and 2011 becomes less relevant, the valuation
becomes more attractive to prospective Buyers.
Recom m end ed Sa le Price = $ 2 7 2 ,3 0 7
Dow n Pa y m ent = $ 8 1,6 9 2 30%
Debt Service
First Mortgage with Ban k $190,615 7 0 % Percen t Ban k will fin an ce
In terest Rate 5 % Assu m e SBA loan
No. Years 7 SBA loan s typically am ortized over 7 yrs if n o RE; 10 to 15 yrs with Real Estate if blen ded
Mon th ly Pm t $2,694
Seller Prom issory Note $0 0% Requ ired Percen tage Fin an ced by own er
In terest Rate 5 %
No. Years 10
Mon th ly Pm t $0
Tota l Mon th ly PMT $2,694
Tota l An n u a l PMTs $ 3 2 ,3 3 0
Operatin g Assets (100% with con trollin g in terest) + In ven tory
Bu yer dwn pm t
Before Tax Cash Flow (BTCF)
> Own e r Be n e fit wh ile se rvicin g th e de bt.
wSDE Less An n u al Debt Service= $ 10 7 ,10 6
cu rren t year SDE Less An n u al Debt Service= $118,615 FY13 P&L
worse case SDE Less An n u al Debt Service= $34,469 FY11 Tax Retu rn
best case SDE Less An n u al Debt Service= $118,615 FY13 P&L
Usin g wSDE
$34
$107
$119
$0
$20
$40
$60
$80
$100
$120
$140
Thousands
BTCFRange

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DEBT-SERVICE RATIOS
Debt-Service Ratio is another pressure point. It is very common that the Small Business Administration
(SBA) is used as a lending source for main-street business acquisitions. Therefore, to assess a lender’s
risk, we shall assume a Buyer will be seeking financing from the SBA under the terms delineated above in
the Before-Tax Cash Flow section.
The equation for Debt Service Ratio is as follows. In general, the ratio must be greater than about 1.5 for
three consecutive years in order to be considered for approval. Of course, this calculation is only a part of
the decision process, and the exact criteria may vary from lender to lender.
 SDE is Seller’s Discretionary Earnings of the Subject Company.
 BPCF is the Buyer’s personal cash flow. In other words, the creditor considers the Buyer’s
personal debt, aside from the acquisition of the Company, into its assessment.
 Ann. Debt is the annual debt service to acquire the Company under the terms listed above.
Notes:
1. We used $50,000 as the Buyer’s Personal Cash Flow.
2. As with the other Pressure Points, 2011 will be the limiting factor for a borrower to obtain SBA
financing.
Buyer's Personal Cash Flow (BPCF)= ($ 5 0 ,0 0 0 ) with ou t th e bu sin ess in com e
Debt Service= 3.1 FY13 P&L
Debt Service= 2.7 FY12 Tax Return
* To properly calcu late, m ake su re all qu estion able Add-Backs are rem oved.
Debt Service or Coverage Ratio > 1.5 *

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ANALYST & PRINCIPAL PROFILES
FRANCESCO URSO, PRINCIPAL
Franc is a certified public accountant in Florida with over 20 years of experience in business
consulting and operations and buying and selling businesses. Franc began his business career
when he co-founded a real estate investment group that purchased, managed
and sold commercial real estate and retail property. Franc has a Master’s Degree
from the University of Florida in Accounting and a Bachelor’s Degree in
Accounting and Engineering from the University of South Florida.
After graduating from University of Florida, Franc joined the Tampa office of
Price Waterhouse where he serviced clients in the manufacturing, real estate,
retail and financial services industries. His clients included both large and small
companies like Thrucomm, Lykes Brothers, Walter Industries, World Access, Nobility Homes,
Sun Hydraulics, Pinnacle Towers, Prudential Florida Realty, Bay Transportation, Lehigh Acres,
Celotex, Health Plan Services, Harvard Industries and Disney. His primary responsibilities
included auditing his client's books and records and performing due diligence for acquisitions.
Franc was also involved in the IPO of Sun Hydraulics.
Franc became Controller for Thrucomm, Inc., an early-stage high-growth telecommunications
company, located in St. Petersburg, Florida. While at Thrucomm, Franc was successful in raising
$6.5 million in bridge financing and $5 million in leasing financing; completed a private
placement of $15 million in Senior Preferred Stock; and raised $70 million in capital from
private equities market. Franc was also responsible for day-to-day activities of the accounting
department and completing special projects for the executive team.
Franc then joined Gulf Atlantic Capital, an investment banking firm, located in Tampa, Florida,
where he helped clients sell their middle market companies. While at Gulf Atlantic, Franc was
integral in selling the following businesses:
 $45 million wallboard manufacturer, located in Birmingham, Alabama
 $6 million apparel machinery manufacturer, located in Atlanta, Georgia
 $100 million auto parts distributor, located in Dallas, Texas and Tampa, Florida
 $50 million 50-chain restaurant franchisee, located in Scottsdale, Arizona
 $15 million specialty wire manufacturer, located in New York, New York
 $80 million go-cart manufacturer, located in Ft. Wayne, Indiana

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SALVATORE B. URSO, PRINCIPAL
Salvatore Urso has been selling and valuating small, closely held
businesses since 2005. Since then, his practical transaction experience as a
business broker, along with his keen understanding of business valuation
theory, have provided an invaluable framework for rendering accurate
business valuations that can be explained to, and understood by, a
layperson; this is an important attribute that is invaluable in contentious
situations and especially in a court of law.
Mr. Urso has personally interviewed over 800 business owners, performed
over 500 business valuations, and sold over 40 companies. In addition, he
has over 25 years of experience in operating multiple businesses as well as
outside sales & marketing, which are valuable skills that rendered him very adept and effective at
negotiating terms, selling and valuating companies.
All valuations adhere to the AICPA Statement on Standards for Valuation Services (SSVS), NACVA
standards and IRS Revenue Ruling 59-60, as well as and subsequent IRS rulings.
Attorneys, CPAs, SBA lenders, and financial advisors across the United States often refer their clients
to his firm. Over the years, local attorneys and business owners began employing Mr. Urso and his
firm to provide business valuations for various purposes- namely, bankruptcy, divorce, partner
disputes, business mergers and acquisitions.
Mr. Urso has been called upon and qualified to testify as an expert witness in court cases involving
business valuations. IMPORTANT: Most engagements are settled in pre-mediation, mediation or
after depositions.
In 2010, Mr. Urso, along with Francesco Urso and other associates co-founded a spin-off, Affiliate
Company called Ameri-Street Advisory, Inc. which focuses primarily on business valuations and
consulting related to business acquisitions across the United States.
Aside from the aforementioned companies, Mr. Urso co-founded two family businesses and is a
managing member in the Tampa based Comfort Keepers home health agency. He has personally
invested in, bought, managed and sold investment properties and businesses for over two decades.
His fundamental recipe is to combine integrity, honesty, experience and attention to detail such that
all parties involved experience a win-win business transaction.

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WILLIAM BURNHAM, PRINCIPAL
Bill Burnham is a lifelong resident of the Tampa Bay area. He is a graduate of the
University of South Florida where he majored in Accounting. He obtained his
MBA from The Florida Institute of Technology in 1983. Bill has 25 years of
experience working with Fortune 500 companies, nearly twenty of those years
in management positions. During that time he managed over 200 employees and
spent time in accounting, finance, manufacturing, production control and
strategic planning. He managed government contract budgets in excess of 50
million dollars and operating budgets of more than 25 million dollars. He prepared analysis for
potential acquisitions, proposals for government contracts and conducted companywide
training programs on several different topics. Bill’s experience includes successfully integrating
the manufacturing operations of acquired companies into existing operations on two separate
occasions. He also led the implementation of a new MRP system which was completed six
months ahead of schedule. Complementing his large company background, Bill also has many
years of experience as a small business owner. In his own business Bill tripled his sales,
achieved twenty percent profit margins and retained ninety eight percent of his customers in
his first four years in business. Bill combines this diverse background of experience with a
passion for small businesses and an overarching commitment to honesty to make him uniquely
qualified as an associate with Ameri-Street Advisory.
CHRISTOPHER HENDERSON, PRINCIPAL
Chris graduated from the University of Georgia with an MS in artificial
intelligence and a BS in computer science. He has lived in the Orlando area since
1997. He has more than fifteen years of business experience including large-
scale project management, budgeting, financial analysis, staffing, business
acquisition, customer relationship management, and technical oversight. He has
also owned and managed personal real estate investments for over 15 years.
After working for years in a large corporate environment with companies such
as Lockheed Martin, TRW, Northrop Grumman, Boeing, and SAIC, he founded his own company,
which was consistently one of the top performers of its type nationally. Organized from the
outset for eventual sale, this business sold within weeks for full asking price.
While selling his own company, Chris became fascinated by the workings of the business
brokerage industry and realized it would be a good fit for his analytical, organizational, and
communication skills. He was recruited to join the firm not only for these professional skills, but
also because of his integrity and personal attributes.

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STATEMENT OF ASSUMPTIONS & LIMITING CONDITIONS
1. The conclusion of value arrived at herein is valid only for the stated purpose as of the date of
the valuation.
2. Financial statements and other related information provided by the Subject Company or its
representatives, in the course of this engagement, have been accepted without any verification
as fully and correctly reflecting the enterprise’s business conditions and operating results for
the respective periods, except as specifically noted herein. Our Firm has not audited, reviewed,
or compiled the financial information provided to us and, accordingly; we express no audit
opinion or any other form of assurance on this information.
3. Public information and industry and statistical information have been obtained from sources
we believe to be reliable. However, we make no representation as to the accuracy or
completeness of such information and have performed no procedures to corroborate the
information.
4. We do not provide assurance on the achievability of the results forecasted by the Subject
Company because events and circumstances frequently do not occur as expected; differences
between actual and expected results may be material; and achievement of the forecasted results
is dependent on actions, plans, and assumptions of management.
5. The conclusion of value arrived at herein is based on the assumption that the current level of
management expertise and effectiveness would continue to be maintained, and that the
character and integrity of the enterprise through any sale, reorganization, exchange, or
diminution of the owners’ participation would not be materially- or significantly changed.
6. This report and the conclusion of value arrived at herein are for the exclusive use of our client
for the sole and specific purposes as noted herein- They may not be used for any other purpose
or by any other party for any purpose. Furthermore the report and conclusion of value are not
intended by the author and should not be construed by the reader to be investment advice in
any manner whatsoever. The conclusion of value represents the considered opinion of our
Firm, based on information furnished to them by the Subject Company and other sources.
7. Neither all nor any part of the contents of this report especially the conclusion of value, the
identity of any valuation specialist(s), or the firm with which such valuation specialists are
connected or any reference to any of their professional designations) should be disseminated to
the public through advertising, media, public relations, news media, sales media, mail, direct
transmittal, or any other means of communication without the prior written consent and
approval of our Firm.
8. Future services regarding the subject matter of this report, including, but not limited to
testimony or attendance in court, shall not be required of our Firm unless previous
arrangements have been made in writing.
9. Our Firm is not an environmental consultant or auditor, and it takes no responsibility for any
actual or potential environmental liabilities. Any person entitled to rely on this report, wishing
to know whether such liabilities exist, or the scope and their effect on the value of the property,
is encouraged to obtain a professional environmental assessment. Our Firm does not conduct or
provide environmental assessments and has not performed one for the subject property.

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10. Our Firm has not determined independently whether the Subject Company is subject to any
present or future liability relating to environmental matters (including, but not limited to
CERCLA/Superfund liability) nor the scope of any such liabilities. Our Firm’s valuation takes no
such liabilities into account, except as they have been reported to our Firm by the Subject
Company or by an environmental consultant working for the Subject Company, and then only to
the extent that the liability was reported to us in an actual or estimated dollar amount. Such
matters, if any, are noted in the report. To the extent such information has been reported to us,
our Firm has relied on it without verification and offers no warranty or representation as to its
accuracy or completeness.
11. Our Firm has not made a specific compliance survey or analysis of the subject property to
determine whether it is subject to, or in compliance with, the American Disabilities Act of 1990,
and this valuation does not consider the effect if any, of noncompliance.
12. The conclusion of value (or the calculated value) in this report may deviate from the
Statement on Standards for Valuation Services as a result of published governmental, judicial,
or accounting authority.
13. No change of any item in this report shall be made by anyone other than our Firm, and we
shall have no responsibility for any such unauthorized change.
14. Unless otherwise stated, no effort has been made to determine the possible effect, if any, on
the subject business due to future Federal, state, or local legislation, including any
environmental or ecological matters or interpretations thereof.
15. If prospective financial information approved by management has been used in our work,
we have not examined or compiled the prospective financial information and therefore, do not
express an audit opinion or any other form of assurance on the prospective financial
information or the related assumptions. Events and circumstances frequently do not occur as
expected and there will usually be differences between prospective financial information and
actual results, and those differences may be material.
16. We have conducted interviews with the current management of the Subject Company
concerning the past, present, and prospective operating results of the company.
17. Except as noted, we have relied on the representations of the owners, management, and
other third parties concerning the value and useful condition of all equipment, real estate,
investments used in the business, and any other assets or liabilities, except as specifically stated
to the contrary in this report. We have not attempted to confirm whether or not all assets of the
business are free and clear of liens and encumbrances or that the entity has good title to all
assets.
18. The analyst(s) involved in the preparation of this Conclusion of Value or a Calculated Value
has (have) no financial interest or contemplated financial interest in the subject of this report.
19. Unless agreed upon in writing, our Firm is not obligated to update this report.

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INTERNATIONAL GLOSSARY OF BUSINESS VALUATION TERMS
To enhance and sustain the quality of business valuations for the benefit of the profession and
its clientele, the below identified societies and organizations have adopted the definitions for
the terms included in this glossary4.
Adjusted Book Value Method—a method within the asset approach whereby all assets and
liabilities (including off-balance sheet: intangible: and contingent) are adjusted to their fair
market values. (NOTE: In Canada on a going concern basis)
Adjusted Net Asset Method- see Adjusted Book Value Method.
Appraisal- see Valuation.
Appraisal Approach- see Valuation Approach.
Appraisal Date- see Valuation Date.
Appraisal Method- see Valuation Method.
Appraisal Procedure- see Valuation Procedure.
Arbitrage Pricing Theory- a multivariate model for estimating the cost of equity capital, which
incorporates several systematic risk factors.
Asset (Asset-Based) Approach—a general way of determining a value indication of a business:
business ownership interest: or security using one or more methods based on the value of the
assets net of liabilities.
Beta- a measure of systematic risk of a stock; the tendency of a stock’s price to correlate with
changes in a specific index.
Blockage Discount—an amount or percentage deducted from the current market price of a
publicly traded stock to reflect the decrease in the per share value of a block of stock that is of a
size that could not be sold in a reasonable period of time given normal trading volume.
Book Value-see Net Book Value.
Business- see Business Enterprise.
Business Enterprise—a commercial, industrial, service, or investment entity (or a combination
thereof) pursuing an economic activity.
Business Risk—the degree of uncertainty of realizing expected future returns of the business
resulting from factors other than financial leverage. See Financial Risk.
Business Valuation—the act or process of determining the value of a business enterprise or
ownership interest therein.
4 Reproduced verbatim from the International Glossary of Business Valuation Terms (the Glossary)

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Capital Asset Pricing Model (CÅPM)—a model in which the cost of capital for any stock or
portfolio of stocks equals a risk-free rate plus a risk premium that is proportionate to the
systematic risk of the stock or portfolio.
Capitalization—a conversion of a single period of economic benefits into value.
Capitalization Factor—any multiple or divisor used to convert anticipated economic benefits of
a single period into value.
Capitalization of Earnings Method—a method within the income approach whereby economic
benefits for a representative single period are converted to value through division by a
capitalization rate.
Capitalization Rate—any divisor usually expressed as a percentage) used to convert anticipated
economic benefits of a single period into value.
Capital Structure—the composition of the invested capital of a business enterprise; the mix of
debt and equity financing.
Cash Flow—cash that is generated over a period of time by an asset, group of assets, or business
enterprise. It may be used in a general sense to encompass various levels of specifically defined
cash flows. When the term is used, it should be supplemented by a qualifier (for example,
“discretionary” or “operating”) and a specific definition in the given valuation context.
Common Size Statements—financial statements in which each line is expressed as a percentage
of the total. On the balance sheet: each line item is shown as a percentage of total assets, and on
the income statement, each item is expressed as a percentage of sales.
Control—the power to direct the management and policies of a business enterprise.
Control Premium—an amount or a percentage by which the prorata value of a controlling
interest exceeds the pro rata value of a non-controlling interest in a business enterprise to
reflect the power of control.
Cost Approach—a general v of determining a value indication of an individual asset by
quantifying the amount of money required to replace the future service capability of that asset.
Cost of Capital—the expected rate of return that the market requires in order to attract funds to
a particular investment.
Debt-Free—ire discourage the use of this term. See Invested Capital.
Discount for Lack of Control—an amount or percentage deducted from the pro rata share of
value of 100% of an equity interest in a business to reflect the absence of some or all of the
powers of control.
Discount for Lack of Marketability—an amount or percentage deducted from the value of an
ownership interest to reflect the relative absence of marketability.
Discount for Lack of Voting Rights—an amount or percentage deducted from the per share
value of a minority interest voting share to reflect the absence of voting rights.
Discount Rate—a rate of return used to convert a future monetary sum into present value.

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Discounted Cash Flow Method—a method within the income approach whereby the present
value of future expected net cash flows is calculated using a discount rate.
Discounted Future Earnings Method—a method within the income approach whereby the
present value of future expected economic benefits is calculated using a discount rate.
Economic Benefits—inflows such as revenues, net income, net cash flows. etc.
Economic Life—the period of time over which property may generate economic benefits.
Effective Date—see Valuation Date.
Enterprise—see Business Enterprise.
Equity—the owner’s interest in property after deduction of all liabilities.
Equity Net Cash Flows—those cash flows available to pay out to equity holders (in the form of
dividends) after funding operations of the business enterprise, making necessary capital
investments, and increasing or decreasing debt financing.
Equity Risk Premium—a rate of return added to a risk-free rate to reflect the additional risk of
equity instruments over risk free instruments (a component of the cost of equity capital or
equity discount rate).
Excess Earnings—that amount of anticipated economic benefits that exceeds an appropriate
rate of return on the value of a selected asset base (often net tangible assets) used to generate
those anticipated economic benefits.
Excess Earnings Method—a specific way of determining a value indication of a business,
business ownership interest, or security determined as the sum of a) the value of the assets
derived by capitalizing excess earnings and b) the value of the selected asset base. Also
frequently used to value intangible assets. See Excess Earnings.
Fair Market Value—the price, expressed in terms of cash equivalents, at which property would
change hands between a hypothetical willing and able buyer and a hypothetical willing and able
seller, acting at arms-length in an open and unrestricted market, when neither is under
compulsion to buy or sell and when both have reasonable knowledge of the relevant facts.
(NOTE: In Canada, the term “price” should be replaced with the term “highest price”.)
Fairness Opinion—an opinion as to whether or not the consideration in a transaction is fair
from a financial point of view.
Financial Risk—the degree of uncertainty of realizing expected future returns of the business
resulting from financial leverage. See Business Risk.
Forced Liquidation Value—liquidation value, at which the asset or assets are sold as quickly as
possible, such as at an auction.
Free Cash Flow—we discourage the use of this term. See Net Cash Flow.
Going Concern—an ongoing operating business enterprise.
Going Concern Value—the value of a business enterprise that is expected to continue to operate
into the future. The intangible elements of Going Concern Value result from factors such as

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having a trained work force, an operational plant, and the necessary licenses, systems, and
procedures in place.
Goodwill—that intangible asset arising as a result of name, reputation, customer loyalty,
location, products, and similar factors not separately identified.
Goodwill Value—the value attributable to goodwill.
Guideline Public Company Method- a method within the market approach whereby market
multiples are derived from market prices of stocks of companies that are engaged in the same
or similar lines of business and that are actively traded on a free and open market.
Income (Income-Based) Approach—a general way of determining a value indication of a
business, business ownership interest, security, or intangible asset using one or more methods
that convert anticipated economic benefits into a present single amount.
Intangible Assets—nonphysical assets such as franchises, trademarks, patents, copyrights,
goodwill, equities, mineral rights, securities, and contracts (as distinguished from physical
assets) that grant rights and privileges and have value for the Internal Rate of Return—a
discount rate at which the present value of the future cash flows of the investment equals the
cost of the investment.
Intrinsic Value—the value that an investor considers, on the basis of an evaluation or available
facts, to be the “true” or “real” value that will become the market value when other investors
reach the same conclusion. When the term applies to options, it is the difference between the
exercise price and strike price of an option and the market value of the underlying security.
Invested Capital—the sum 0f equity and debt in a business enterprise. Debt is typically (a) all
interest-bearing debt or (b) long-term, interest-bearing debt. When the term is used, it should
be supplemented by a specific definition in the given valuation context.
Invested Capital Net Cash Flows—those cash flows available to pay out to equity holders (in the
form of dividends) and debt investors (in the form of principal and interest) after funding
operations of the business enterprise and making necessary capital investments.
Investment Risk—the degree of uncertainty as to the realization of expected returns.
Investment Value—the value to a particular investor based on individual investment
requirements and expectations. (NOTE: in Canada the term used is “Value to the Owner”)
Key Person Discount—an amount or percentage deducted from the value of an ownership
interest to reflect the reduction in value resulting from the actual or potential loss of a key
person in a business enterprise
Levered Beta—the beta reflecting a capital structure that includes debt.
Limited Appraisal—the act or process of determining the value of a business, business
ownership interest security or intangible asset with limitations in analyses, procedures, or
scope.
Liquidity—the ability to quickly convert property to cash or pay a liability.
Liquidation Value—the net amount that would be realized if the business is terminated and the
assets are sold piecemeal. Liquidation can be either “orderly” or “forced.”

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Majority Control—the degree of control provided by a majority position.
Majority Interest—an ownership interest greater than 50% of the voting interest in a business
enterprise.
Market (Market-Based) Approach—a general way of determining a value indication of a
business, business ownership interest, security, or intangible asset by using one or more
methods that compare the subject to similar businesses, business ownership interests,
securities, or intangible assets that have been sold.
Market Capitalization of Equity—the share price of a publicly traded stock multiplied by the
number of shares outstanding.
Market Capitalization of Invested Capital—the market capitalization of equity plus the market
value of the debt component of invested capital.
Market Multiple—the market value of a company’s stock or invested capital divided by a
company measure (such as economic benefits, number of customers).
Marketability—the ability to quickly convert property to cash at minimal cost.
Marketability Discount—see Discount for Lack of Marketability.
Merger and Acquisition Method—a method within the market approach whereby pricing
multiples are derived from transactions of significant interests in companies engaged in the
same or similar lines of business.
Mid-Year Discounting—a convention used in the Discounted Future Earnings Method that
reflects economic benefits being generated at midyear approximating the effect of economic
benefits being generated evenly throughout the year.
Minority Discount—a discount for lack of control applicable to a minority interest.
Minority Interest—an ownership interest less than 50% of the voting interest in a business
enterprise.
Multiple—the inverse of the capitalization rate Net Book Value—with respect to a business
enterprise, the difference between total assets (net of accumulated depreciation, depletion, and
amortization) and total liabilities as they appear on the balance sheet (synonymous with
Shareholder’s Equity. With respect to a specific asset, the capitalized cost less accumulated
amortization or depreciation as it appears on the books of account of the business enterprise.
Net Cash Flows—when the term is used, it should be supplemented by a qualifier. See Equity
Net Cash Flows and Invested Capital Net Cash Flows.
Net Present Value—the value, as of a specified date, of future cash inflows less all cash outflows
(including the cost of investment) calculated using an appropriate discount rate.
Net Tangible Asset Value—the value of the business enterprise’s tangible assets (excluding
excess assets and non-operating assets) minus the value of its liabilities.
Non-operating Assets—assets not necessary to ongoing operations of the business enterprise.
(NOTE: in Canada, the term used is “Redundant Assets”)

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Normalized Earnings—economic benefits adjusted for nonrecurring, noneconomic, or other
unusual items to eliminate anomalies and/or facilitate comparisons.
Normalized Financial Statements—financial statements adjusted for non-operating assets and
liabilities and/or for nonrecurring, noneconomic: or other unusual items to eliminate anomalies
and/or facilitate comparisons.
Orderly Liquidation Value—liquidation value at which the asset or assets are sold over a
reasonable period of time to maximize proceeds received.
Premise of Value—an assumption regarding the most likely set of transactional circumstances
that may be applicable to the subject valuation; for example, going concern, liquidation.
Present Value—the value, as of a specified date, of future economic benefits and/or proceeds
from sale, calculated using an appropriate discount rate.
Portfolio Discount—an amount or percentage deducted from the value of a business enterprise
to reflect the fact that it owns dissimilar operations or assets that do not fit well together.
Price/Earnings 1%Iultiple—the price of a share of stock divided by its earnings per share.
Rate of Return—an amount of income loss) and/or change in value realized or anticipated on
an investment, expressed as a percentage of that investment.
Redundant Assets—see Non-operating Assets.
Report Date—the date conclusions are transmitted to the client.
Replacement Cost New—the current cost of a similar new property having the nearest
equivalent utility to the property being valued.
Reproduction Cost New—the current cost of an identical new property.
Required Rate of Return—the minimum rate of return acceptable by investors before they will
commit money to an investment at a given level of risk.
Residual Value—the value as of the end of the discrete projection period in a discounted future
earnings model.
Return on Equity—the amount, expressed as a percentage, earned on a company’s common
equity for a given period.
Return on Investment—See Return on Invested Capital and Return on Equity.
Return on Invested Capital—the amount, expressed as a percentage, earned on a company’s
total capital for a given period.
Risk-Free Rate—the rate of return available in the market on an investment free of default risk.
Risk Premium—a rate of return added to a risk-free rate to reflect risk.
Rule of Thumb—a mathematical formula developed from the relationship between price and
certain variables based on experience, observation, hearsay; or a combination of these; usually
industry specific.

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Special Interest Purchasers—acquirers who believe they can enjoy post-acquisition economies
of scale, synergies, or strategic advantages by combining the acquired business interest with
their own.
Standard of Value—the identification of the type of value being utilized in a specific
engagement; for example, fair market value, fair value, investment value.
Sustaining Capital Reinvestment—the periodic capital outlay required to maintain operations at
existing levels, net of the tax shield available from such outlays.
Systematic Risk—the risk that is common to all risky securities and cannot be eliminated
through diversification. The measure of systematic risk in stocks is the beta coefficient.
Tangible Assets—physical assets (such as cash, accounts receivable, inventory, property, plant
and equipment, etc.).
Terminal Value—See Residual Values.
Transaction Method—See Merger and Acquisition Method.
Unlevered Beta—the beta reflecting a capital structure without debt.
Unsystematic Risk—the risk specific to an individual security that can be avoided through
diversification.
Valuation—the act or process of determining the value of a business, business ownership
interest, security or intangible asset.
Valuation Approach—a general way of determining a value indication of a business, business
ownership interest, security, or intangible asset using one or more valuation methods.
Valuation Date-the specific point in time as of which the valuator’s opinion of value applies (also
referred to as “Effective Date” or “Appraisal Date”).
Valuation Method—within approaches, a specific way to determine value.
Valuation Procedure—the act, manner, and technique of performing the steps of an appraisal
method.
Valuation Ratio—a fraction in which a value or price serves as the numerator and financial,
operating, or physical data serve as the denominator.
Value to the Owner—see Investment Value.
Voting Control—de jure control of a business enterprise.
Weighted Average Cost of Capital (WACC)—the cost of capital (discount rate) determined by
the weighted average, at market value, of the cost of all financing sources in the business
enterprise’s capital structure.

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GLOSSARY OF ADDITIONAL TERMS
Assumptions and Limiting Conditions. Parameters and boundaries under which a valuation
is performed, as agreed upon by the valuation analyst and the client or as acknowledged or
understood by the valuation analyst and the client as being due to existing circumstances. An
example is the acceptance, without further verification by the valuation analyst from the client
of the client’s financial statements and related information.
Business Ownership Interest. A designated share in the ownership of a business (business
enterprise).
Calculated Value. An estimate as to the value of a business, business ownership interest,
security, or intangible asset, arrived at by applying valuation procedures agreed upon with the
client and using professional judgment as to the value or range of values based on those
procedures.
Calculation Engagement. An engagement to estimate value wherein the valuation analyst and
the client agree on the specific valuation approaches and valuation methods that the valuation
analyst will use and the extent of valuation procedures the valuation analyst will perform to
estimate the value of a subject interest. A calculation engagement generally does not include all
of the valuation procedures required for a valuation engagement. If a valuation engagement had
been performed, the results might have been different. The valuation analyst expresses the
results of the calculation engagement as a calculated value, which may be either a single amount
or a range.
Capital or Contribution- Asset Charge. A fair return on an entity’s contributory assets, which
are tangible and intangible assets used in the production of income or cash flow associated with
an intangible asset being valued. In this context, income or cash flow refers to an applicable
measure of income or cash flow; such as net income, or operating cash flow- before taxes and
capital expenditures. A capital charge may be expressed as a percentage return on an economic
rent associated with, or a profit split related to, the contributory assets.
Capitalization of Benefits Method. A method within the income approach whereby expected
future benefits (for example, earnings or cash flow) for a representative single period are
converted to value through division by a capitalization rate.
Comparable Profits Method. A method of determining the value of intangible assets by
comparing the profits of the subject entity with those of similar uncontrolled companies that
have the same or similar complement of intangible assets as the subject company.
Comparable Uncontrolled Transaction Method. A method of determining the value of
intangible assets by comparing the subject transaction to similar transactions in the market
place made between independent (uncontrolled) parties.
Conclusion of Value. An estimate of the value of a business, business ownership interest,
security, or intangible asset, arrived at by applying the valuation procedures appropriate for a
valuation engagement and using professional judgment as to the value or range of values based
on those procedures.

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Control Adjustment. A valuation adjustment to financial statements to reflect the effect of a
controlling interest in a business. An example would be an adjustment to owners’ compensation
that is in excess of market compensation.
Engagement to Estimate Value. An engagement, or any part of an engagement (for example, a
tax, litigation, or acquisition-related engagement), that involves determining the value of a
business, business ownership interest, security, or intangible asset. Also known as valuation
service.
Excess Operating Assets. Operating assets in excess of those needed for the normal operation
of a business.
Fair Value. In valuation applications, there are two commonly used definitions for fair value:
(1) For financial reporting purposes only; the price that would be received to sell an asset or
paid to transfer a liability in an orderly transaction between market participants at the
measurement date. Source: Financial Accounting Standards Board Accounting Standards
Codification glossary.
(2) For state legal matters only, some states have laws that use the term fair cake in
shareholder and partner matters. For state legal matters only; therefore: the term may be
defined by statute or case law in the particular jurisdiction.
Guideline Company Transactions Method. A method within the market approach whereby
market multiples are derived from the sales of entire companies engaged in the same or similar
lines of business.
Hypothetical Condition. That which is or may be contrary to what exists, but is supposed for
the purpose of analysis.
Incremental Income. Additional income or cash flow attributable to an entity’s ownership or
operation of an intangible asset being valued: as determined by a comparison of the entity’s
income or cash flow with the intangible asset to the entity’s income or cash flow without the
intangible asset. In this context, income or cash flow refers to an applicable measure of income
or cash flow; such as license royalty income or operating cash flow before taxes and capital
expenditures.
Normalization. See Normalized Earnings in Appendix “International Glossary of Business
Valuation Terms.”
Pre-adjustment Value. The value arrived at prior to the application: if appropriate, of
valuation discounts or premiums.
Profit Split Income. With respect to the valuation of an intangible asset of an entity, a
percentage allocation of the entity’s income or cash flow whereby (1) a split (or percentage) is
allocated to the subject intangible and (2) the remainder is allocated to all of the entity’s
tangible and other intangible assets. In this context, income or cash flow refers to an applicable
measure of income or cash flow, such as net income or operating cash flow before taxes and
capital expenditures.
Relief from Royalty Method. A valuation method used to value certain intangible assets (for
example, trademarks and trade names based on the premise that the only value that a
purchaser of the assets receives is the exemption from paying a royalty for its use. Application

Discount for Lack of Control and Marketability

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