EBITDA stands for Earnings Before Interest, Taxes, Depreciation and Amortization. EBITDA earnings are used by many valuation professionals and financial analysts as a method to compare the cash earnings of a subject company with cash earnings of comparable companies. This method of earnings comparison is useful because it equalizes differences between or among companies in … Continue reading Top 10 Questions of Value: 10. What is the Difference between EBITDA and Seller’s Discretionary Earnings and Why are they Important in Financial Analysis?

Sometimes people use the two terms interchangeably. However, for valuation purposes there may be a significant difference in the two terms. Enterprise value is often referred to as the value of the invested capital which includes the value of the equity and the value of the firm’s liabilities. This could represent the asset side of … Continue reading Top 10 Questions of Value : 9.What Is the Difference between Enterprise Value and Equity Value?

As an expert consultant, the valuation professional is engaged to develop information that will be used by the attorney in a variety of ways, including settlement negotiations with the opposing side. In these instances, the valuation professional is usually not expected to testify or to develop an opinion of value that will be entered into … Continue reading Top 10 Questions of Value: 8.What Is the Difference Between an Expert Consultant and Expert Witness?

Buy-sell agreements for privately-held companies provide the shareholders with a mechanism by which the interest of a deceased or withdrawing shareholder may be liquidated through a repurchase agreement, a cross-purchase agreement, or a hybrid agreement. Providing for how the value of the shares is established is critical for a successful buy-sell agreement. Generally, there are … Continue reading Top 10 Questions of Value: 7. How Is a Valuation Useful when Drafting Buy-Sell Agreements?

Rules of Thumb are generally expressed as multipliers. A common example would be that some particular type of business will sell for .75 to 1.50 times annual revenues. Another popular multiple is a multiple of discretionary earnings. For example, a particular type of business is said to sell for X times Seller's Discretionary Cash Flow … Continue reading Top 10 Questions of Value: 6. Are “Rules of Thumb” Useful in Business Valuations?

An Accredited Valuation Analyst (AVA) is a valuation professional who has completed specialized advanced training in business valuations through the National Association of Certified Valuation Analysts (NACVA) and who has also completed a comprehensive examination and submitted a complete written valuation report to examiners. AVAs receive continuing education in valuations each year and observe the … Continue reading Top 10 Questions of Value : 5. What Are the Qualifications of an Accredited Valuation Analyst and a Certified Business Appraiser?

Goodwill is defined as the intangible asset arising as a result of name, reputation, customer loyalty, location, products, and similar factors not separately identified. The notion of goodwill has existed since mankind first entered into commercial activity. In ancient Egyptian bazaars, merchants knew the location closest to the city gates would provide the best opportunity … Continue reading Top 10 Questions of Value: 4. What Is Goodwill?

Yes! Business valuations are a must for estate and gift tax purposes. Estate valuation principles relating to business interests are in Regs. 20-2031-2 (f) and 20-2031-3. Gift tax valuation principles relating to gifts and bargain sales of a business interest are in Reg. 25.2512.3. Valuations for estate tax purposes are critical because the valuation determines … Continue reading Top 10 Questions of Value: 3. Are Business Valuations Needed for Gift and Estate Tax Purposes?

Generally there are two discounts considered in the valuation of a closely held business: 1) Lack of Marketability (Liquidity) and 2) Minority Interest (Lack of Control). The marketability (or liquidity) discount will apply in most valuation situations of privately-held companies. The data used in developing the appropriate discount or capitalization rate applicable to the subject … Continue reading Top 10 Questions of Value: 2. What “Discounts” Are Applicable When Gifting a Business Interest?

In its simplest form, the Capitalization of Earnings Method provides an estimate of value of a company by converting the future income stream into value by dividing by a capitalization rate that incorporates a required rate of return for risk assumed by an investor along with a factor for future growth in the earnings stream being … Continue reading Top 10 Questions of Value: 1.What Is the Capitalization of Earnings Method?