"Insights on Valuation" -- 3rd Quarter, 2010 Issue
We are pleased to include our quarterly newsletter "Insights on Valuation." In this issue, we discuss:
"What is Fair Value?": In performing a valuation of a business the starting point is identifying and defining the standard of value that will apply based on the facts and circumstances surrounding the engagement. Fair Value is commonly used in dissenting shareholder litigation. As a judicially mandated concept, it is subject to court interpretation and varies from state to state.
"What is Fair Market Value?": Fair Market Value is the standard of value applicable to the most business valuation projects for divorce court, estate and gift taxation, accounting, and many private transactions. The definition of Fair Market Value for business valuations comes from Revenue Ruling 59-60 published by the Internal Revenue Service. The definition originated in the tax law, but it has become the applicable definition of value for nearly all venues:
"Rules of ThumbIt’s Not That Simple": Reducing the complexity of business valuation to rules of thumb is an appealing proposition. Avoiding complex cash flow calculations and side stepping necessary adjustments makes the process of valuation more appealing and more accessible to the lay user. However, one must still deal with the dilemma: “Should it be done simply because it can be done?” Is there value in the simplicity of rules of thumb?