tailieunhanh - PORTABLE MBA IN FINANCE AND ACCOUNTING CHAPTER 18

18 BUSINESS VALUATION. Michael A. Crain. It has been said that determining the value of an investment in a closely held business is similar to analyzing securities of public companies. The theories are similar and not overly complex on the surface. There are even Web sites that proclaim to be able to value a private business. But like so many things in the business world, the devil is in the details. | BUSINESS VALUATION Michael A. Crain It has been said that determining the value of an investment in a closely held business is similar to analyzing securities of public companies. The theories are similar and not overly complex on the surface. There are even Web sites that proclaim to be able to value a private business. But like so many things in the business world the devil is in the details. The valuation of a closely held business depends on many variables. While the theories of valuation are not overly complicated the accuracy of the valuation result is only as good as the variables that go into it. The valuation of closely held businesses is often complicated because of the limitations of the underlying information and the way private businesses are operated. Unlike public companies private businesses often do not have complete and accurate information available. Dollar for dollar the time to accurately value most profitable private companies is out of proportion to the analysis of public-company securities. This is illustrated in the following case study that demonstrates the financial theories of business valuation and the level of information needed for an accurate result. For the past 20 years Bob has owned and operated a manufacturing business that has grown significantly since its inception. Bob is approaching 60 years of age and his children do not appear capable of taking over the company. He is contemplating the future of the business at a time when he would like to slow down. One of his options is selling his business. Bob s company ACME Manufacturing Inc. is a manufacturer of certain types of adhesives and sealants and has revenues of approximately 50 million. It has six manufacturing locations throughout the country. Bob owns 100 of the company s common stock. He does not know what the company is worth nor does he know how its value 593 594 Making Key Strategic Decisions would be determined. Bob asked his certified public accountant CPA about .