Market Values

6 Key excerpts on "Market Values"

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  eBook - ePub

  Private Capital Markets

  Valuation, Capitalization, and Transfer of Private Business Interests

  • Robert T. Slee(Author)
  • 2011(Publication Date)
  • Wiley

    (Publisher)

  Business Appraisal Practice (Fall, 2003).

  11 .

  Christopher Razaire, “How to Figure Odds in Forecasting Acquisition Results,” Mergers & Acquisitions (November/December 1995): 6–12.

  Passage contains an image CHAPTER 4 Market Value

  The world of market value describes the value of a business interest in the marketplace. Value is normally expressed as an equity enterprise value. The owner who says his business is worth $X is generally referring to the world of market value. By seeking a market value for his business, an owner is motivated to find the open market value, probably envisioning a transfer.

  “Market value” is defined as: The highest purchase price available in the marketplace for selected assets or stock of the company.

  This definition assumes the assets or stock of the company are valued on a debt-free basis, which means all interest-bearing debt must be deducted from the derived market equity values. Most market valuations are also done on a cash-free basis, meaning the seller keeps the excess operating cash and marketable securities in the company at the closing.

  An owner whose motive is to derive the highest value obtainable in the marketplace focuses the appraisal process on the world of market value. Adapting a concept from commercial real estate appraisal, the market value focuses on determining the highest and best value for a business. No other value world has this goal or requires the combination of methods unique to this value world.

  Rather than Internal Revenue Service (IRS) regulations, court precedents, or insurance company rules, financial intermediaries govern the market value. As with most private business valuation, market value requires a point-in-time expression of value. Determining value in this world requires a fair amount of market knowledge. In other words, the valuer needs to know what is really going on when two parties come together to make a deal.

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  An Accounting Thesaurus

  500 years of accounting

  • Richard L. Chambers(Author)
  • 2014(Publication Date)
  • Pergamon

    (Publisher)

  In the ultimate analysis this price reflects the degree of usefulness that the community attaches to the assets . . . . If directors fail to earn something approaching market rate of return on figures approximating to the market value of the resources they control they are in effect reducing the level of the national income below what the market in general thinks it could be. Such a situation should be made apparent . . . . Edey, 1960/1980, 201 The most important determination [of asset value] to be made generally is the mea-surement of significance in the market, i.e. the determination of market value . . . . the market value of property is what it will bring. So widespread is the use of this concept that in many cases it is indicated by the use of the term, value, without any qualifying adjective. Dohr & others, 1964, 87 selling prices . . . . are necessary to define market alternatives, they express the investment required to hold assets and they are a component of a risk indicator.. For all of these reasons, I conclude that the items on a balance sheet should be valued at their present selling prices. Since income is defined as the difference between wealth (net worth) at two points of time, it follows that the income statement would be an explanation of the changes in the exit values on two successive balance sheets. Sterling, 1972, 208 Valuation at money equivalent or cash equivalent When we speak of an object as possessing a certain money value, we express the measure of its purported equivalent in money. Gundelfinger, 1924, 335 511 An Accounting Thesaurus for the purpose of determining the amount to be declared and paid as a dividend, it is necessary that the true value of the assets in cash, and not the mere book value, should be ascertained.

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  eBook - ePub

  Selling the Intangible Company

  How to Negotiate and Capture the Value of a Growth Firm

  • Thomas Metz(Author)
  • 2008(Publication Date)
  • Wiley

    (Publisher)

  Value exists in the context of a market. This begs an obvious question: What is a market? A market is a group of buyers and sellers who come together to buy or sell something. If the market is comprised of many buyers and many sellers then this is a liquid market. A good example is the stock market. There are many buyers and many sellers for most of the stocks traded on the exchanges or over-the-counter. The more buyers and sellers, the more liquid the market is. Liquidity is important because it enables one to buy or sell shares without driving the price up or down significantly.

  The market for shares of a small public company is not as liquid as for shares of a large public company. If an investor wants to buy or sell shares of a small public company it will cost him more because there are fewer buyers and sellers. The spread between the bid and asked prices is greater. In addition, the sale of a large number of shares will push the price down, sometimes significantly.

  For a small privately held company whose value is intangible there is no market of buyers. Since intangible companies are acquired by strategic buyers, there may be at most four or six companies in the world that are truly good buyers. This is not enough buyers to represent a real market.

  TYPES OF VALUE

  In order to better understand intangible value, let’s first discuss financial value, which is a more widely understood concept. Financial value is value based on expected future cash flows. In essence the buyer is purchasing a stream of cash flow in the future. The historical earnings can often be a good predictor of future earnings.

  For a public company, market capitalization is the simplest measure of a company’s financial value. Market capitalization is the current stock price multiplied by the number of outstanding shares. Market capitalization, or market cap, ignores debt however, and for companies with substantial debt this can change the picture dramatically. In most cases, enterprise value is a more accurate measure of value.

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  Litigation Support Report Writing

  Accounting, Finance, and Economic Issues

  • Jack P. Friedman, Roman L. Weil(Authors)
  • 2015(Publication Date)
  • Wiley

    (Publisher)

  Potential for additional gains is related more to increasing market share than to increasing markets. SECTION IV—OVERVIEW OF VALUATION METHODOLOGY Introduction In addressing business or securities valuation, one must first make determina-tions as to the definition of value and the level of value. The term “definition of value” refers to the value standard to be applied. Different circumstances call for Valuation of Stock in a Corporation 51 differing definitions of value. The term “level of value” relates to the level of rights and powers associated with the ownership interest. Interests with more rights and powers generally have higher values than their otherwise-equal counterparts. Once the definition of value and the level of value are determined, appro-priate valuation methodologies can be applied. There are three generally ac-cepted methodologies that can be applied to determine the Fair Market Value of a business or asset: (1) a Cost Approach, (2) a Market Approach, and (3) an Income Approach. Each valuation methodology has its own set of unique strengths and weaknesses, depending upon the nature of the subject asset or business. The simultaneous application of at least two of these methodologies may yield supporting conclusions of value for the subject asset. Below is a brief description of each methodology. Definition of Value For any business, security, or asset, there is more than one value. This is easily seen in relation to tangible property; people readily accept that the liqui-dation value of a tangible asset may be less than the value it contributes to the business operation in which it is used. For example, consider the case of a con-ference table. Assume it cost $5,000 to purchase and is relatively new. That table may have a replacement cost less physical depreciation of $4,000 but may only fetch $500 in a liquidation sale.

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  Corporate Finance, Law and Governance

  • (Author)
  • 2014(Publication Date)
  • College Publishing House

    (Publisher)

  _____________WORLD TECHNOLOGIES_____________ Chapter- 4 Project Valuation Business valuation Business valuation is a process and a set of procedures used to estimate the economic value of an owner’s interest in a business. Valuation is used by financial market participants to determine the price they are willing to pay or receive to consummate a sale of a business. In addition to estimating the selling price of a business, the same valuation tools are often used by business appraisers to resolve disputes related to estate and gift taxation, divorce litigation, allocate business purchase price among business assets, establish a formula for estimating the value of partners' ownership interest for buy-sell agreements, and many other business and legal purposes. Standard and premise of value Before the value of a business can be measured, the valuation assignment must specify the reason for and circumstances surrounding the business valuation. These are formally known as the business value standard and premise of value. The standard of value is the hypothetical conditions under which the business will be valued. The premise of value relates to the assumptions, such as assuming that the business will continue forever in its current form (going concern), or that the value of the business lies in the proceeds from the sale of all of its assets minus the related debt (sum of the parts or assemblage of business assets). Business valuation results can vary considerably depending upon the choice of both the standard and premise of value. In an actual business sale, it would be expected that the buyer and seller, each with an incentive to achieve an optimal outcome, would determine the fair market value of a business asset that would compete in the market for such an acquisition. If the synergies are specific to the company being valued, they may not be considered. Fair value also does not incorporate discounts for lack of control or marketability.

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  Corporate Finance Handbook

  • (Author)
  • 2014(Publication Date)
  • Library Press

    (Publisher)

  ____________________ WORLD TECHNOLOGIES ____________________ Chapter- 4 Project Valuation Business valuation Business valuation is a process and a set of procedures used to estimate the economic value of an owner’s interest in a business. Valuation is used by financial market participants to determine the price they are willing to pay or receive to consummate a sale of a business. In addition to estimating the selling price of a business, the same valuation tools are often used by business appraisers to resolve disputes related to estate and gift taxation, divorce litigation, allocate business purchase price among business assets, establish a formula for estimating the value of partners' ownership interest for buy-sell agreements, and many other business and legal purposes. Standard and premise of value Before the value of a business can be measured, the valuation assignment must specify the reason for and circumstances surrounding the business valuation. These are formally known as the business value standard and premise of value. The standard of value is the hypothetical conditions under which the business will be valued. The premise of value relates to the assumptions, such as assuming that the business will continue forever in its current form (going concern), or that the value of the business lies in the proceeds from the sale of all of its assets minus the related debt (sum of the parts or assemblage of business assets). Business valuation results can vary considerably depending upon the choice of both the standard and premise of value. In an actual business sale, it would be expected that the buyer and seller, each with an incentive to achieve an optimal outcome, would determine the fair market value of a business asset that would compete in the market for such an acquisition. If the synergies are specific to the company being valued, they may not be considered. Fair value also does not incorporate discounts for lack of control or marketability.

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