Business valuation experts can’t always accept the subject company’s financial statements at face value. Sometimes adjustments are needed before an expert can use the financial statements to value a business. This article provides three common types of adjustments and explains when each one might be relevant.
Under U.S. Generally Accepted Accounting Principles (GAAP), two new accounting rules on revenue recognition and leases will soon go into effect for public companies. (Private companies get an extra year’s reprieve.) This article explains that these changes could have a major impact on how business valuation professionals evaluate financial statements, apply pricing multiples and estimate a company’s cost of capital.
Business valuation professionals must decide whether shareholder loans are bona fide debt obligations, a type of equity transaction or a hybrid of the two. Debt vs. equity classification has relevance when valuing a business, as well as in divorce cases. This article explains why the distinction matters and what factors the IRS considers when deciding what qualifies as a bona fide loan.
In re Appraisal of PetSmart, Inc., Delaware Ch., C.A. No. 10782-VCS, May 26, 2017
The Tax Cuts and Jobs Act (TCJA) is the biggest change to the tax law in over 30 years. This article explains why it’s important to consider 1) how tax reform will specifically affect the subject company’s cash flow, 2) how management plans to use any tax savings, and 3) whether management’s projections seem reasonable. A sidebar explains how the new law could also affect a company’s tax base (the amount to which new, lower tax rates will be applied).