Attorneys know that a credible valuation analysis requires a substantial number of hours by an analyst with a high level of expertise. When reviewing an expert valuation report, it is critical to identify the most common errors that can cause a court to discredit or even disregard a report. The following checklist serves as a quick guide for attorneys to avoid the most obvious deficiencies: Is the standard of value followed? Has the analyst carefully disclosed and defined the applicable standard of value? Has the standard of value been followed consistently throughout? Are all three valuation methods considered? These include the income, market, and asset approaches. Is the internal analysis consistent? For example: Did the analyst match pricing multiples or capitalization rates to the wrong economic income measure? Are current intangible asset operational data matched to different time periods, without appropriate adjustment? Did the analyst “normalize” financial statements without also normalizing the corresponding data for selected comparable companies? Was a “highest and best use” analysis performed? Was an “actual use” analysis also performed? Did the analyst make extraordinary, subjective, or speculative assumptions? Is there sufficient support for selected variables? Any analyst should document the data used, the procedures performed, and the valuation conclusions reached. There should also be sufficient tracing from the data in the quantitative analysis to the intangible asset in the owner/operator financial statement. Do the numbers add up? Mathematical errors are more common than anyone cares to admit; check all numerical calculations for accuracy, and make sure […]
Monthly Archives: January 2011
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Withstand the Scrutiny of Cross-Examination and Criticism of your Business Valuation Expert Report
Posted in Business Valuation, on Jan 2011, By: Mark S. GottliebShare
The popular media have devoted countless hours to storylines that portray fraud in the workplace as an important plot device. From the early TV series Perry Mason and Arrest and Trial to the ubiquitous “ripped from the headlines” stories of the Law and Order franchise, as well as new series on cable such as White Collar, we’ve never lost our fascination for stories that involve fraud and how the perpetrator is finally caught. What compels the senior level manager, the low level employee or the longtime middle manager to ultimately risk everything, convinced that their crimes will go undetected? The characters in popular fiction, as in the real world, are frequently motivated by financial need caused by avarice, gambling debts, business reversals, poor investments or trying to maintain a lifestyle well beyond their means. Now it seems that almost every day in the business media there are new reports on workplace fraud in all its forms. The frequency of such reports now seem to be outpacing the tv episodes that draw from the “true stories,” and underscoring that truth is stranger than fiction. In a time of massive Ponzi schemes and burgeoning white-collar crime, one can understand why fraud is not uncommon in the business world. In fact, employee fraud costs businesses billions of dollars each year. Employee fraud is an ongoing, widespread and varied problem, one that comes in all sizes for all kinds of companies. It can significantly impact a company’s productivity and profitability. The reasons for fraud […]