This presentation was given by Brent McDade at the 19th Annual Decosimo Accounting Forum at the University of North Alabama.

1. A Global Reach with a Local Perspective
University of North Alabama
19th Annual Decosimo Accounting Forum
July 22, 2011
www.decosimo.com
Business Valuation for Financial
Statement Reporting
BRENT MCDADE, ASA, CBA•BVAL
Managing Director

2. DECOSIMO ADVISORY SERVICES
 Business valuation
 Litigation support
 Transaction advisory

3. DECOSIMO CORPORATE FINANCE
 Member FINRA / SIPC
 Formalization of services firm already providing
 Over 100 soft drink bottling transactions
 5 Major League Baseball transactions
 Lots of capital raising

4. WHAT WE WILL COVER TODAY
 What is value?
 Approaches to value
 Levels of value
 Business valuation and financial reporting
 Common occasions
 Level of value
 Peculiarities

5. WHAT IS VALUE?

6. A FUNNY THING HAPPENED ON MY WAY
TO A NOBEL PRIZE

7. A FUNNY THING HAPPENED ON MY WAY
TO A NOBEL PRIZE

8. THE THREE APOSTLES
 Income
 Market
 Asset

9. THE INCOME APPROACH
“Prediction is difficult, especially about the future.”
--Niels Bohr

10. THE MARKET APPROACH
 Compare to comparable investments
 Price to Earnings Ratio
 Total Capital to Revenue Ratio
 Total Capital to EBITDA
 Etc.
 Rely (theoretically) on the valuation arithmetic
performed by others

11. THE MARKET APPROACH
“But do we know when irrational exuberance has unduly escalated
asset values, which then become subject to unexpected and
prolonged contractions…”
- Allan Greenspan

12. THE ASSET APPROACH
 Also known as the cost approach
 How much is our stuff worth?
 How much do we owe our creditors?
 The difference is the value of our equity.
 Problem: How do we value certain types of stuff?

13. THE ASSET APPROACH
“I cannot change the fact that my paintings do not sell. But
the time will come when people will recognize that they are
worth more than the value of the paints used in the picture.”
-- Vincent Van Gogh

14. LEVELS OF VALUE

15. BV and FSR
 Purchase Price Allocation
 Goodwill Impairment Testing
 Tax – 409A
 Securities Issued as Compensation (718)

16. PURCHASE PRICE ALLOCATION
 ASC 820
 Fair value: the price that would be received to sell an
asset or paid to transfer a liability in an orderly
transaction between market participants at the
valuation date
 BEV
 Market participant assumptions regarding cash
flows
 Market participant assumptions regarding risk
 Controlling interest level of value

17. LEVELS OF VALUE

18. GOODWILL IMPAIRMENT TESTING
 ASC 350-20
 BEV
 Market participant assumptions regarding cash
flows
 Market participant assumptions regarding risk
 Controlling interest level of value

19. LEVELS OF VALUE

20. 409A
 IRC
 Value of the minority interest
 May not = pro rata value of the enterprise
 Cash flows to the minority interest holder
 Risks of the minority interest
 Nonmarketable minority interest basis

21. LEVELS OF VALUE

22. 718 SECURITIES ISSUES AS
COMPENSATION
 505 Securities issued to vendors generally the same
 Fair value: The amount at which an asset (or liability)
could be bought (or incurred) or sold (or settled) in a
current transaction between willing parties, that is,
other than in a forced or liquidation sale
 Value of the minority interest
 May not = pro rata value of enterprise
 Cash flows to the minority interest
 Risks of the minority interest
 Nonmarketable minority interest basis

23. LEVELS OF VALUE

24. LEVELS OF VALUE SUMMARY
 Purchase Price Allocation – Control
 Impairment Test – Control
 409A – Nonmarketable Minority
 718 and 505 – Minority
 Primary investors – securities generally considered
marketable (Practice Aid)
 Other investors – depends on attributes of securities
 Rules can be confusing

25. PECULIARITIES
 Valuation for one of these purposes may not be
entirely appropriate for another
 The preference for a customer related intangible
 Unexpected magnitude of goodwill impairment

26. CONNECT WITH ME
Brent McDade, ASA, CBA•BVAL
Managing Director
423.266.5212
brentmcdade@decosimo.com
On LinkedIn:
www.linkedin.com/in/brentmcdade
Disclaimer: The contents of this presentation are for informational purposes only. The information is not intended to be a substitute for
professional accounting counsel. Always seek the advice of your accountant or other financial planner with any questions you may have
regarding your financial goals or specific situations.