Date of Award

2001

Document Type

Thesis

Degree Name

Master of Science

Department

Business

First Advisor

Rita Kottmeyer

Second Advisor

Carlene Collins

Third Advisor

Noel Novak-Pilch

Abstract

This thesis is an expository study that extracts the experience and insights I have developed over the last 20 years as a Financial Consultant, in advising thousands of clients as to the fair market value of their enterprise or business interests. The intent of" The Fiduciaries Guide To Assessing The Intrinsic Worth Of A Private Enterprise" is to provide a structural framework for implementing a strategic plan for valuing a private enterprise. It will explain the major factors involved in the decision making process for estimating the fair market value of any type of company or partnership, and their securities. With the aid of universal examples, this study will address the most frequent valuation concerns and will guide you in successfully applying standard evaluation techniques to assess the fair value of any enterprise.

In the past, most of the demand for valuations came from buyers and sellers of small companies and parties attempting to establish an appropriate value for tax and other purposes. In many of these cases, regulatory agencies and courts were involved in the valuation decisions. More recently, investment managers have become very interested in these enterprise valuations because of the growth in leveraged buyouts and venture capital investment opportunities.

Although the valuation of private securities fits into the same framework as the valuation of securities of publicly traded firms, there are substantial differences. Some of the characteristics that are particular to the valuation of private businesses include the lack of relevant data, the need to reflect premiums for controlling interests, reflecting discounts for minority interests, and discounts for lack of marketability of the shares. Also, there is a need to conform to laws and regulations, such as Internal Revenue Service regulations, state and federal laws, and the existence of legal precedents that dominate various aspects of valuations.

An owner or a partner of an enterprise may be the most valuable authority on evaluating the key considerations that go into the valuation decision. However, estimating the value of a business is probably an experience that finds one on unfamiliar ground. Therefore, it is very important to understand all of the considerations, criteria and principles that go into arriving at the fair market value of an enterprise, or to be more precise, the range of possible values. This may be worth thousands, hundreds of thousands, or possibly millions of dollars to you.

The intention of this thesis is not to offer a substitute for sound accounting and legal advice. Moreover, it will provide valuable information to accountants, lawyers, appraisers and other advisors by familiarizing them with major factors affecting the valuation of a business, factors that may be outside their respective specialties

This guide will also help you to communicate effectively with valuation experts specializing in different areas, such as stocks or partnership units, real estate, machinery and equipment, fine arts, antiques, etc., as the valuation methodologies used in this thesis are universal for all disciplines. Additionally, this study will assist you in dealing reasonably with the Internal Revenue Service, buyers or sellers of a business, and others who may have a special interest in assessing the value of an enterprise. It will show you how to integrate the various viewpoints and decisions with your own so that you will be able to arrive at a more precise value for an enterprise, a value which may be considerably higher than you have ever imagined.

Download

Included in

Business Commons

Share

COinS