35 of 40 people found the following review helpful:
5.0 out of 5 stars
Review of "Financial Valuation: Applications and Models", May 20, 2003
This review is from: Financial Valuation: Applications and Models (Hardcover)
Jim Hitchner, a name well-known to ABVs and other valuation practitioners, conceived the novel idea of bringing together twenty-five highly visible and well-respected valuation professionals to present the group's collective views and positions on business valuation concepts and applications. Each of the authors is a coauthor of the entire book. The authors, many of whom are ABVs and instructors for the AICPA's national business valuation educational program, include Mel Abraham, Jim Alerding, Terry Allen, Larry Cook, Mike Crain, Bob Duffy, Ed Dupke, Nancy Fannon, John Gilbert, Tom Hilton, Jim Hitchner, Steve Hyden, Greg Koonsman, Eva Lang, Mike Mard, Harold Martin, Mike Mattson, Ray Moran, Charles Phillips, Jim Rigby, Ron Seigneur, Robin Taylor, Linda Trugman, Don Wisehart, and Mark Zyla.
The result of this collective effort is "Financial Valuation" - a text that presents a compilation of "best practices" for the business appraiser.
"Financial Valuation" covers the obligatory fundamentals found in most other introductory texts. What sets this text apart from others is its focus on applications and methods. The text contains numerous practical examples and discusses alternative approaches for tackling those complex issues that are often encountered in the real world of valuation practice. This focus makes "Financial Valuation" an indispensable tool for even the most experienced appraisers. Some of the text's highlights include:
Chapter 4, Income Approach to Value, discusses the alternative income valuation methodologies and includes a detailed example of the excess cash flow (earnings) method.
Chapter 5, Cost of Capital/Rates of Return, includes a comprehensive presentation on the application of Ibbotson data for determining risk premiums in discount and capitalization
rates.
Chapter 6, Market Approach to Value, discusses alternative market valuation methodologies and presents a quantitative method for using and adjusting guideline public company multiples for size and growth differences.
Chapter 9, Report Writing, presents a detailed valuation report with numerous comments on why certain items were included or excluded.
Chapter 12, Family Limited Partnerships, presents a detailed case study on the valuation of a Family Limited Partnership including the selection of discounts for lack of control and
lack of marketability.
Chapter 13, Court Case Issues and Review, includes synopses of over 40 tax court cases organized by major valuation areas of dispute.
Chapter 16, Valuation in the Divorce Setting, discusses the complexities of valuing ownership interests in closely held businesses for divorce purposes, including a discussion of relevant state case law, standard of value, applicability of discounts and premiums, etc.
Chapter 18, Valuation Issues in Professional Practices, provides an overview of the issues involved in valuing professional practices such as medical, law, and accounting practices.
Chapter 19, Valuation of Healthcare Entities, includes two detailed case studies: a surgery center and a hospital.
Chapter 20, Valuation of Intangible Assets, includes a detailed case study on an allocation of purchase price for a business combination under new SFAS 141.
Chapter 21, Marketing, Managing, and Making Money in a Valuation Services Group, presents practical guidance on how to operate a valuation practice.
Chapter 24, Valuation Views and Controversial Issues, presents a discussion of subjective and difficult areas of valuation in the form of a case study/report format.
The text also includes hundreds of "ValTips" which alert the reader to important and often controversial topics. The accompanying "Financial Valuation Workbook" provides a detailed case study, models, and exercises that can substantially reduce a beginner's learning curve and assist the experienced practitioner in better organizing the valuation process. The Workbook follows the valuation engagement format and is organized by standard, easily identifiable sections that allow for easy reference.
SUMMARY
"Financial Valuation" gets two enthusiastic thumbs up!
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2 of 3 people found the following review helpful:
5.0 out of 5 stars
Financial Valuation Applications and Models (Second Edition): A Titanic Tour de Force, May 14, 2009
James Hitchner and his 29 well-respected peers from the valuation industry have realized an impressive tour de force in describing and commenting on the proper methods of valuations for a wide variety of public and private business entities such as C corporations, S corporations, and other pass-through entities. Valuations can be needed for a wide variety of purposes such as internal planning, mergers and acquisitions, estate, gift, and income taxes, shareholder disputes, marital dissolution, buy-sell agreements, etc.
Whoever believes that financial valuation is an exact science will quickly change his/her mind by reading only the last chapter that focuses on controversial issues that still prevail in the valuation industry (pp. 1261-1304). Hitchner and his peers want their audience to use their book as a guide that cannot be construed as a substitute for professional judgment. Furthermore, financial valuations do not exist in a vacuum. Facts and circumstances underlie well-done financial valuations.
The greatest value of the authors' book lies in their in-depth analysis of applications in the valuation industry. Their thorough examination of sample evaluation reports (pp. 469-549; 1261-1304) and their review of case laws (pp. 451-468; 731-777) come top of mind. Although Hitchner and his peers do a great job at cross-referencing their manual, readers are advised to connect additional dots on their own to derive the most value from this guide.
In a third edition of "Financial Valuation Applications and Models," Hitchner and his peers could consider the following suggestions:
1) Introduce readers in chapter 1 not only to concepts such as the purpose of valuation, standards of value, premises of value, and approaches to value (pp. 2-8), but also to the different levels of value applicable to a business or a business interest (pp. 376-378; 1156).
2) Move forward chapter 21 (pp. 935-1014) dedicated to the valuation of intangible assets and place it for example after chapter 7 (pp. 317-374) that focuses on the asset approach to valuation. Intangible assets are an increasingly important contributor to value in more and more business entities as the authors themselves note repeatedly.
3) Dedicate a separate chapter for each of the topics of chapter 24 (pp. 1047-1131) such as the valuation of early-stages technology companies and real option valuations.
4) Make chapter 20 (pp. 883-933) about strategic benchmarking for value more practical through the use of real examples. Whoever has already used scorecards in his/her job will derive little value from this chapter.
5) Add a CD-Rom to the book with a sample of evaluation reports for the different purposes mentioned in the introduction to financial valuation (p. 2). Furthermore, the CD-Rom could contain the Excel files that are behind a number of exhibits across the book
6) Use a more flexible jacket that will give the book a longer shelf life to better withstand its regular use over time.
To summarize, the book under review clearly does not target readers who have a short attention span, lack persistence, or are looking for some magic, simplistic formulas in the area of financial valuations. This book could benefit anyone interested in attaining a deep understanding of financial valuations.
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