Methods and Timing
Four Primary Methods
BAS utilizes the four methods recognized by the AICPA1, ASA2, and NACVA3 as being the foundation of a certified valuation. For each client situation, BAS determines the relevance of each of these valuation methods.
- Discounted Cash Flow Method: estimating all future cash flows, incoming and outgoing, and discounting them back to their value as of the Valuation Date using a required rate of return based on industry market data.
- Capitalized Cash Flow Method: A representative cash flow figure for your business is determined based on an anlysis of historical financial performance. To this figure, a cash flow multiple is applied that is based on industry rates of return and an estimate of the long-term growth prospects for your business.
- Guideline Company Method: compares your company to relatively similar public companies, using the stock prices of the public companies to figure their total market value. We calculate valuation multiples for the public companies based on several financial benchmarks such as revenues, EBITDA, net earnings and cash flows. Then, we adjust those multiples to reflect differences in economic risk between the public companies and your company. Relevant economic risks include differences in expected long-term growth rates, size differences, customer concentration risks, key person risks, and significant differences in key financial ratios.
- Acquired Company Method: considers the selling prices of other similar privately-held companies to come up with valuation multiples that can be used to value your company. The valuation multiples from the selected transactions are adjusted to reflect differences in economic risk between the acquired companies and your company, similar to the public guideline company method.
In addition, for valuations of controlling ownership interests, sometimes it is appropriate to consider an Asset Based Approach when the market values of all assets minus all liabilities may be higher than the value that can be generated from the earnings and cash flows of a business.
Timing of the Valuation
The typical valuation analysis can be completed within approximately four to six weeks from the time we receive the company's financial records pursuant to a short Information Request List that we will provide to you.