Set 4 FI 17 Valuations: Big Picture Flashcards
Main reason for needing a valuation?
Sale of business
Some other reasons?
impairment of assets takeover bid IPO using shares as collateral reorg for tax
Define FMV
maximum possible price to be obtained from an arm’s length purchaser between informed and prudent parties under no compulsion to act in an open and unrestricted market, expressed in terms of money or money’s worth.
3 asset-based approaches to valuation
liquidation, adjusted net asset, replacement cost
4 income-based approaches
capitalized cash flow, discounted cash flow, capitalized earnings, discounted earnings
2 market-based approaches
assets with an active market, comparable transaction
approach used if company not going-concern.
liquidation
two types of liquidation
orderly, forced - less money for assets in forced
approach used if no ongoing operations, but is a going concern
adjusted net asset. also appropriate if company has active ops but no excess earnings
approach used if there is active ops, excess earnings and historical cash flows are indicative of future results
capitalized cash flow
approach used if there is active ops, excess earnings and historical cash flows are NOT indicative of future results
discounted cash flow - startups etc.
approach used if there is active ops, excess earnings and historical earnings are indicative of future results
capitalized earnings - a multiplier is used.
approach used if there is active ops, excess earnings and historical earnings are NOT indicative of future results
discounted earnings
when are market based approaches used?
A market-based approach is used when the company is a going concern and information required to determine a valuation multiple is publicly available and reasonably comparable
