Financial Valuation

A comprehensive guide to the theory and application of valuation, along with useful models, tools, and tips for analysts

Financial Valuation: Applications and Models provides authoritative reference and practical guidance on the appropriate, defensible way to prepare and present business valuations. With contributions by 30 top experts in the field, this updated edition provides an essential resource for those seeking the most up-to-date methods, with a strong emphasis on applications and models. Coverage includes the latest approaches to the valuation of closely held businesses, nonpublic entities, intangibles, and other assets, with comprehensive discussion on valuation theory, a consensus view on application, and the tools to make it happen.

This 5th edition has been revised throughout, introducing new and extended coverage of essential topics like: S Corps, discounts for lack of marketability, cost of capital resources, cash flow methods, depositions and trials, and more. Packed with examples, checklists, and models to help navigate valuation projects, this book is an excellent practical tool for working professionals. It also provides hundreds of expert tips and best practices in clear, easy-to-follow language. The companion website provides access to extensive appendix materials, and the perspectives of valuation thought leaders add critical insight.

• Learn the art and science of estimating the value of businesses, including closely held businesses and nonpublic entities
• Determine the monetary value of intangible assets like goodwill, intellectual property, and brand recognition
• Update your knowledge with the latest valuation methods, approaches, and tools
• Use checklists, templates, models, and examples to make your valuations easier

Business valuation analysts, CPAs, appraisers, and attorneys—as well as anyone aspiring to those careers—will appreciate the comprehensive theory and thorough practical guidance in Financial Valuation: Applications and Models.

About the Editor xvii

About the Authors xix

Acknowledgments xxxv

Preface xxxvii

Chapter 1 Introduction to Financial Valuation 1

Chapter 2 Standards of Value 131

Chapter 3 Research and Its Presentation 163

Chapter 4 Financial Statement and Company Risk Analysis 181

Chapter 5 Income Approach 219

Chapter 6 Cost of Capital/Rates of Return 291

Chapter 7 International Cost of Capital 377

Chapter 8 Market Approach 403

Chapter 9 Asset Approach 455

Chapter 10 Valuation Discounts and Premiums 507

Chapter 11 Addendum— Sample Valuation Report 617

Chapter 12 Business Valuation Standards 709

Chapter 13 Valuation of Pass-Through Entities 737

Chapter 14 Estate, Gift, and Income Tax Valuations 777

Chapter 15 Valuation of Family Limited Partnerships 821

Chapter 16 Summary of Tax Court Case Valuation Issues 877

Chapter 17 Shareholder Disputes 881

Chapter 18 Employee Stock Ownership Plans 915

Chapter 19 Valuation in the Divorce Setting 951

Chapter 20 Valuation Issues in Small Businesses 977

Chapter 21 Valuation Issues in Professional Practices 993

Chapter 22 Reasonable Compensation 1015

Chapter 23 The Valuator as Expert Witness 1039

Chapter 24 Fair Value Measurement and the Valuation of Intangible Assets 1059

Chapter 25 Marketing, Managing, and Making Money in a Valuation Services Group 1139

Chapter 26 Business Damages 1141

Chapter 27 Other Valuation Service Areas 1175

Chapter 28 Valuation of Healthcare Service Businesses 1181

Chapter 29 Determination of Compensation in the Healthcare Industry 1235

Chapter 30 Special Industry Valuations 1245

Chapter 31 Buy- Sell Agreements 1303

Chapter 32 Valuation Views and Controversial Issues: an Illustration 1335

About the Website 1453

Index 1457

JAMES R. HITCHNER, CPA/ABV/CFF, is Managing Director of Financial Valuation Advisors, President of the Financial Consulting Group, CEO of Valuation Products and Services, and Editor-in-Chief of Hardball with HITCHNER. He has been court-qualified as an expert witness on the subject of business valuations and has 44 years of experience in the valuation field.

In the newly revised fifth edition of Financial Valuation:Applications and Models, veteran valuation expert James Hitchner delivers an authoritative and comprehensive reference on appropriate, defensible techniques for preparing business valuations. The book contains contributions from over 30 top experts in the field, including the most up-to-date guidance and a strong emphasis on applications and models.

Hitchner includes new material plus updated coverage on discounts for lack of marketability, cost of capital resources and applications, report writing, depositions and trials (for expert valuation witnesses), and capitalized versus discounted cash flow valuation methods. He also includes a brand new detailed case study and report. This reliable resource combines the latest in valuation theory, the consensus view on proper application, and the tools you need to apply and implement them to your projects. You’ll also find explanations of closely held business valuation, nonpublic entities, and intangible and other assets.

Financial Valuation, Fifth Edition is packed with examples, checklists, and models to help navigate a valuation project, as well as hundreds of tips and best practices from experts written in clear, concise language. It also provides access to a companion website that includes extensive appendix materials and perspectives from a variety of valuation thought leaders.

Since its debut in 2003, Financial Valuation: Applications and Models, now in its fifth edition, has increasingly become the go-to source for business valuation education. It currently serves as the primary text in several university courses throughout the country and is the basis for both the American Institute of Certified Public Accountants five-day business valuation school and the National Association of Certified Valuators and Analysts three-day advanced BV course.

It has been cited in many valuation reports and in litigation settings as support for various issues in business valuation. The book has also been used to serve the international business valuation community in numerous countries.

AN UP-TO-DATE DESK REFERENCE FOR RELIABLE AND EFFECTIVE BUSINESS VALUATION

Financial Valuation: Applications and Models, Fifth Edition is the most up-to-date source of reliable and defensible methods for the valuation of closely held businesses, nonpublic entities, intangible assets, public companies, and other firms. Editor and coauthor James Hitchner offers an authoritative reference for the preparation and presentation of business valuations and includes contributions from over 30 top experts in the field.

A strong emphasis on applications and models is combined with updated coverage of discounts for lack of marketability, cost of capital resources and applications, report writing, deposition and trial advice (for expert valuation witnesses), and capitalized versus discounted cash flow valuation methods. It also includes a brand new detailed case study and report.

Packed full of checklists, examples, and models to help you navigate your next valuation project, Financial Valuation, Fifth Edition provides hundreds of tips and best practices from qualified experts and access to a companion website that includes extensive appendix materials. It’s the ideal resource for business valuation analysts, certified public accountants, business lawyers, M&A professionals, business appraisers, entrepreneurs, founders, executives, and other business leaders.

R. James Alerding • Rosanne J. Aumiller • Neil J. Beaton • Mark Bello • Erica Bramer • James T. Budyak • Karolina Calhoun • Carol Carden • Larry R. Cook • Don M. Drysdale • Edward J. Dupke • Jay E. Fishman • Michelle Gallagher • Chris Hamilton • Bethany Hearn • James R. Hitchner • Ted Israel • Harold G. Martin Jr. • Lari Masten • Raymond E. Moran • Katherine E. Morris • Alina Niculita • Maureen Rutecki • Greg Saunders • Ronald L. Seigneur • Mark Smith • Stacey D. Udell • Samuel Y. Wessinger • Laurie-Leigh White • Richard M. Wise • Kevin R. Yeanoplos