Business
Valuations
Facilitating strategic decision-making
Overview
Business valuations involve determining the worth of a company through a systematic analysis of its financial and operational metrics. This process is essential for various purposes, such as mergers and acquisitions, investment decisions, financial reporting, and strategic planning.
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Financial modelers use different valuation methods to assess the intrinsic value of a business. Common approaches include the discounted cash flow (DCF) method, which estimates the present value of future cash flows; comparable company analysis, which compares the target company to similar entities in the market; and precedent transactions analysis, where past acquisition deals are analyzed for reference.
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In financial modeling, a comprehensive understanding of a company's historical and projected financial performance is crucial for accurate valuations. This includes factors such as revenue growth, profit margins, capital structure, and risk considerations. Sensitivity analysis is often incorporated to assess the impact of changing assumptions on the valuation.
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Business valuations serve as a fundamental tool for investors, stakeholders, and executives to make informed decisions about buying, selling, or investing in a company. The results of these valuations guide negotiations, determine fair market value, and contribute to strategic planning by providing a quantitative foundation for assessing a company's worth in the broader business landscape.
Scope of Services
01
Purchase Price Allocations
Purchase Price Allocations (PPA) are a critical aspect of mergers and acquisitions, involving the systematic allocation of the purchase price to acquired assets and liabilities. This accounting process is essential for accurately reflecting the fair value of acquired entities in the acquiring company's financial statements. We specialize in valuing intangible assets such as customer relationships, developed technology, patents, license agreements, trade names and trademarks, non-compete agreements, and assembled workforce, among others. We deploy specific valuation methods such as the multi-period excess earnings method (MPEEM), the relief-from-royalty method, the with-and-without method, and the cost savings method, among others, to value these intangible assets in accordance with guidelines provided by standard-setting bodies such as the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB).
02
409A (Stock-Based Compensation)
A 409A valuation, named after the Internal Revenue Code section, is crucial for privately-held companies issuing stock options to employees. This valuation determines the fair market value of the company's common stock, establishing a baseline for stock option pricing, and helps companies avoid potential penalties. A 409A valuation conducted by an independent appraiser provides a defensible and accurate assessment of a company's value, safeguarding both employers and employees in the complex realm of deferred equity compensation. We deploy methods such as the Black-Scholes Option Pricing Method (OPM), the Probabilty-Weighted Expected Return Method (PWERM), and the Current Value Method (CVM) to determine the fair market value of common stock as required under this standard.
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Goodwill Impairment Tests
Goodwill impairment tests are vital assessments for companies with acquired assets, ensuring the accuracy of financial reporting. Typically conducted annually, these tests determine if the recorded goodwill on the balance sheet exceeds its fair value. If the fair value is lower, indicating potential impairment, the company must adjust the goodwill and recognize a loss. Companies perform these tests to reflect the economic realities of their acquired assets, maintaining transparency and aligning financial statements with market conditions. It's a crucial exercise for investors and stakeholders, offering insights into the ongoing health and value of a company's intangible assets.