Valuing a Business: The Analysis and Appraisal of Closely Held Companies
The word value means different things to different people. Even to the same person, value means different things in different contexts, as we discussed in the previous section.
Without carefully defining the term value, the conclusions reached in the valuation report have no meaning.
Is the objective of the valuation to estimate fair market value, market value, fair value, true value, investment value, intrinsic value, fundamental value, insurance value, book value, use value, collateral value, ad valorem value, or some other value?
1129 pages, published in 2008
No single valuation method is universally applicable to all appraisal purposes. The context in which the appraisal is to be used is a critical factor.
Different statutory, regulatory, and case precedent standards govern valuations of businesses and business interests under various jurisdictions for diverse pur- poses. Many business appraisals fail to reach a number representing the appropriate definition of value because the appraiser failed to match the valuation methods to the purpose for which it was being performed. The result of a particular appraisal can also be inappropriate if the client attempts to use the valuation conclusion for some purpose other than the intended one.
Valuation reports should contain a set of limiting conditions, and one of the typical limiting conditions is as follows:
This valuation is valid only for the valuation date or dates specified herein and only for the valuation purpose or purposes specified herein. No other purpose is intended or should be inferred.
Litigation over business valuation is commonplace. Much of this litigation arises because the parties have failed to match the valuation methods to the appraisal’s intended purpose.
The purpose of the valuation encompasses the use to which the valuation exer- cise is expected to be put. Subsequent chapters of this book explore how valuation methods are impacted by special and specific purposes to which the valuation analysis may be put (Part VII). Valuations for each of these different purposes are often affected by a mass of complex federal and state statutes and legal precedents.
Shannon P. Pratt, Alina V. Niculita