Valuing a Business in Volatile Markets

Editor: James Horvath Valuing a Business in Volatile Markets is written and compiled to enable business valuators, and others whose business activities touch on business valuation (for instance CFOs, corporate lawyers, accountants, and even sophisticated business owners) to understand how the principles of business valuation are impacted by difficult economic times. This new book provides an excellent overview of the valuation principles and methodologies in chapter one and a more thorough treatment of topics in subsequent chapters. In this regard it is an excellent desktop reference for a reminder/primer on subject areas as well as a good reference for someone wishing to deepen his/her knowledge of valuation issues generally and in the context of economic recession. While the basic principles of business valuation do not change, the economic environment raises new valuation issues and requires the application of valuation principles and methodologies in different ways, or in ways that are informed by a different economic climate. It also provides an international perspective on the topic as well as addressing new and emerging developments such as the impact of the move from financial reporting under Canadian and US GAAP (Generally Accepted Accounting Practices) to IFRS (International Financial Reporting Standards). (Canadian publicly traded companies move to IFRS in 2011) Factors to consider in volatile markets include: •Information may be less reliable - As a result, market views of value between buyer and seller may be more divergent. Values of assets such as investment and pension funds may swing wildly. •Capital funding is constrained - Investors may seek a higher rate of return (to offset higher risk) and higher anxiety levels may occur due to greater uncertainty of the future of the economy. •A greater portion of a company's value may derive from those things that make the business "sticky" with customers - for instance, customer relationships, and intellectual property. •The value of a business and its price, as well as the inputs going into the determination of each, may be much more divergent during difficult times, in part because a vendor may be distressed or because the cost of capital is higher and involves greater risk-taking. •As a valuator, you may also have to forecast more risk into your work than during stable economic periods.