ACC 345 Business Valuation Report Template
Summary Business Valuation Report of
Company ABC, Inc.
Company ABC, Inc.
Report Date, 20XX
Contents
INTRODUCTION 3
Nature, Background, and History 4
Facilities 4
Customers 4
Management 4
Competition 4
Strengths and Weaknesses 4
Ownership 4
Major Shareholder Transactions 4
Business Risks 4
FINANCIAL ANALYSIS 5
Financial Analysis Overview 5
Balance Sheets 5
Assets 5
Liabilities 5
Stockholder’s Equity 6
Income Statements 6
Normalization Adjustments 6
ECONOMIC OUTLOOK 7
Industry Analysis 7
Industry Overview 7
Competitive Landscape 7
Products, Operations and Technology 7
Sales and Marketing 7
Finance and Regulation 7
Regional and International Issues 7
Labor Trends 7
General Economic Analysis 7
Interest rates 7
GDP 7
International and Domestic Trade Policy 7
Monetary Policy 7
Fiscal Policy 7
BUSINESS VALUATION 8
Valuation Approaches 8
Asset Approach 8
Income Approach 8
Market Approaches 8
Selected Method - Income Approach 8
Prospective Analysis 8
Discount rate 9
Valuation calculation 10
DISCOUNTS AND PREMIUMS 11
Discount for Lack of Control 11
Discount for Lack of Marketability 11
FINAL CALCULATION OF VALUE 12
SOURCES 13
INTRODUCTION
Description of the Assignment
Guidance: Assume the intended use is for the sale of a minority stake of the company you’re valuing. This should be stated in this section of the report.
Standard of Value
Guidance: Assume the premise of value is that the business is a “going concern” as opposed to liquidation or other premise. Assume the standard of value is fair market value, as opposed to fair value, investment value, liquidation value or some other standard. This should be stated in this section.
Company ABC, Inc.
Brief History/Overview
Guidance: This section should include a general overview of the following:
Nature, Background, and History
Facilities
Customers
Management
Competition
Strengths and Weaknesses
Ownership
Major Shareholder Transactions
Business Risks
4
FINANCIAL ANALYSIS
Financial Analysis Overview
Guidance: This section should provide a general overview of the balance sheet, the major items present, the company’s capital structure, and any changes over time in these items. A common-size analysis (which is built in to your workbook) will help with this. Ask yourself questions such as, “Has the company taken on additional debt? If so, why?”, or “Does the company have a lot of Intangible Assets? If so, are they at risk for impairment?”
Balance Sheets
Assets
Liabilities
Stockholder’s Equity
Income Statements
Guidance: Similar to the balance sheet write-up, discuss major line items and drivers of those line items. For example, are there increases in Cost of Goods Sold? If so, what are the drivers of those costs?
Normalization Adjustments
Guidance: Discuss any normalization adjustments you’ve made. Remember, normalization adjustments are changes to the incomes statement (or balance sheet) that smooth out or “normalize” any anomalies that the company may have experienced. An example would be expenses related to a corporate merger or restructuring. This helps you in your prospective analysis by not including any unusual expenses or income.
ECONOMIC OUTLOOK
Industry Analysis
Guidance: Research your industry by reviewing a select group of your company’s peers. By reviewing the annual report of 2-3 competitors you will get an understanding of these items below. You may also search the web for scholarly articles on your chosen industry or recent industry reports. Focus on the suggested items below:
Industry Overview
Competitive Landscape
Products, Operations and Technology
Sales and Marketing
Finance and Regulation
Regional and International Issues
Labor Trends
General Economic Analysis
Guidance: Research the primary economy in which your company operates. Use the U.S. as the default if it’s a global firm, but try to incorporate any important global factors if a majority of its operations is a
oad. Focus on the factors suggested below:
Interest rates
GDP
International and Domestic Trade Policy
Monetary Policy
Fiscal Policy
BUSINESS VALUATION
Valuation Approaches
Guidance: Discuss the major approaches below even though you’ll only be calculating the Income Approach. Explain what they are and how they’re derived.
Asset Approach
Income Approach
Market Approaches
Selected Method - Income Approach
Guidance: Explain the mechanics of the calculation below. Discuss your selection for the cells in yellow – annual growth rate, and percentage of revenue for Gross Profit and Operating Expenses.
Prospective Analysis
Discount rate
Guidance: Discuss the purpose of the discount rate in the valuation process. You do not have to explain each of these components, but note that they assign risk to different categories of the company. The risk-free rate is what a company would earn on a riskless government security. The equity risk premium is the risk above the risk-free rate one should expect on an equity security. The industry premium is the risk associated with a particular industry (i.e. manufacturing or retail). The specific company risk is a subjective amount applied by the valuation analyst based on his or her perception of the company’s risk.
Valuation calculation
Guidance: Discuss the mechanics of the calculation below. Provide your reasoning for the amounts chosen for the items in yellow (Depreciation, Capital expenditures, and Debt Reduction).
DISCOUNTS AND PREMIUMS
Discount for Lack of Control
Guidance: You may choose a default discount amount of 15% or if you want to justify a higher or lower amount then you may do so. The following factors below should be considered in this discussion. Explain why each of these factors could only be done by a party with majority control and why a lack thereof could affect the value.
Ability to appoint or change management
Ability to determine management compensation and perquisites.
Able to negotiate and consummate mergers and acquisitions.
Can liquidate, dissolve, sell out or recapitalize the company.
Able to declare and pay cash dividends.
Able to decide what investments to hold and to sell.
Block any or all of the above actions.
Discount for Lack of Marketability
Guidance: Similar to the DLOC, you may choose a default value. Use 25% or if you want you may justify a higher or lower amount. The following factors should be considered because these factors affect a company’s liquidity, which in turn affects its marketability.
Suggested factors that should be considered:
Company’s Dividend Policy
Nature of the Company
Company Management
Amount of Control to be Transfe
ed
Restrictions on Transferability of Stock
Holding Period for Stock
Company’s Redemption Policy
Costs Associated with a Public Offering
Note: In practice there is a lot of effort spent on determining these discounts, but due to a lack of free resources and time it is impractical to require that in this course.
12
FINAL CALCULATION OF VALUE
Guidance: Summarize the table below and what it is telling the reader.
SOURCES
The following sources were used to derive the conclusions in this report and the ultimate calculation of value:
Cu
ent and historical financial statements were obtained for years ended:
Industry data from:
Economic data from:
Other sources:
13
Company ABC Inc.
Balance Sheets
December 31, 2014 through 2018
20142015201620172018 XXXXXXXXXX
Cu
ent Assets
Cash-$ -$ -$ -$ -$ - %- %- %- %- %
Accounts receivable, net- - - - - - - - - -
Inventory- - - - - - - - - -
Other cu
ent assets- - - - - - - - - -
Total cu
ent assets- - - - - - - - - -
Property, plant & equipment- - - - - - - - -