QSM Chap 10 Service Culture in Tourism and Hospitality Industry.pptx
Business Valuation for Financial Statement Reporting
1. A Global Reach with a Local Perspective
University of North Alabama
19th Annual Decosimo Accounting Forum
July 22, 2011
www.decosimo.com
Business Valuation for Financial
Statement Reporting
BRENT MCDADE, ASA, CBA•BVAL
Managing Director
3. DECOSIMO CORPORATE FINANCE
Member FINRA / SIPC
Formalization of services firm already providing
Over 100 soft drink bottling transactions
5 Major League Baseball transactions
Lots of capital raising
4. WHAT WE WILL COVER TODAY
What is value?
Approaches to value
Levels of value
Business valuation and financial reporting
Common occasions
Level of value
Peculiarities
9. THE INCOME APPROACH
“Prediction is difficult, especially about the future.”
--Niels Bohr
10. THE MARKET APPROACH
Compare to comparable investments
Price to Earnings Ratio
Total Capital to Revenue Ratio
Total Capital to EBITDA
Etc.
Rely (theoretically) on the valuation arithmetic
performed by others
11. THE MARKET APPROACH
“But do we know when irrational exuberance has unduly escalated
asset values, which then become subject to unexpected and
prolonged contractions…”
- Allan Greenspan
12. THE ASSET APPROACH
Also known as the cost approach
How much is our stuff worth?
How much do we owe our creditors?
The difference is the value of our equity.
Problem: How do we value certain types of stuff?
13. THE ASSET APPROACH
“I cannot change the fact that my paintings do not sell. But
the time will come when people will recognize that they are
worth more than the value of the paints used in the picture.”
-- Vincent Van Gogh
16. PURCHASE PRICE ALLOCATION
ASC 820
Fair value: 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
valuation date
BEV
Market participant assumptions regarding cash
flows
Market participant assumptions regarding risk
Controlling interest level of value
20. 409A
IRC
Value of the minority interest
May not = pro rata value of the enterprise
Cash flows to the minority interest holder
Risks of the minority interest
Nonmarketable minority interest basis
22. 718 SECURITIES ISSUES AS
COMPENSATION
505 Securities issued to vendors generally the same
Fair value: The amount at which an asset (or liability)
could be bought (or incurred) or sold (or settled) in a
current transaction between willing parties, that is,
other than in a forced or liquidation sale
Value of the minority interest
May not = pro rata value of enterprise
Cash flows to the minority interest
Risks of the minority interest
Nonmarketable minority interest basis
24. LEVELS OF VALUE SUMMARY
Purchase Price Allocation – Control
Impairment Test – Control
409A – Nonmarketable Minority
718 and 505 – Minority
Primary investors – securities generally considered
marketable (Practice Aid)
Other investors – depends on attributes of securities
Rules can be confusing
25. PECULIARITIES
Valuation for one of these purposes may not be
entirely appropriate for another
The preference for a customer related intangible
Unexpected magnitude of goodwill impairment
26. CONNECT WITH ME
Brent McDade, ASA, CBA•BVAL
Managing Director
423.266.5212
brentmcdade@decosimo.com
On LinkedIn:
www.linkedin.com/in/brentmcdade
Disclaimer: The contents of this presentation are for informational purposes only. The information is not intended to be a substitute for
professional accounting counsel. Always seek the advice of your accountant or other financial planner with any questions you may have
regarding your financial goals or specific situations.