Quantitative Business Valuation: A Mathematical Approach for Today's Professionals [Hardcover]

Jay B. Abrams (Author)

Book Description

ISBN-10: 0070002150 | ISBN-13: 978-0070002159 | Publication Date: November 16, 2000 | Edition: 1

Quantitative Business Valuation is the first authoritative work to guide professionals through the business valuation process with a quantitative—as opposed to qualitative—focus. Jay Abrams’s unique methodology combines original research and mathematical material to lead readers through an integrated approach to forecasting cash flow, calculating discount rates, calculating discounts and premiums, and much more.

Editorial Reviews

From the Inside Flap

Essential reading for the serious business appraiser, Quantitative Business Valuation, Second Edition is the definitive guide to quantitative measurements in the valuation process. No other book written on business valuation is as well researched, innovative, and bottom-line beneficial to you as a practitioner.

Written by leading valuation and litigation economist Jay B. Abrams, this text is a rigorous and eye-opening treatment filled with applications for a wide variety of scenarios in the valuation of your privately held business.

Substantially revised for greater clarity and logical flow, the Second Edition includes new coverage of:

• Converting forecast net income to forecast cash flow

• Damages in manufacturing firms

• Regressing scaled y-variables as a way to control for heteroscedasticity

• Mathematical derivation of the Price-to-Sales (PS) ratio

• Monte Carlo Simulation (MCS) and Real Options (RO) Analysis

• Venture capital and angel investor rates of return

• Lost inventory and lost profits damage formulas in litigation

Organized into seven sections, the first three parts of this book follow the chronological sequence of performing a discounted cash flow. The fourth part puts it all together, covering empirical testing of Abrams' valuation theory and measuring valuation uncertainty and error. Parts five to seven round it all out with discussion of litigation, valuing ESOPs and partnership buyouts, and probabilistic methods including valuing start-ups.

The resulting work, solidly grounded in economic theory and including all necessary mathematics, integrates existing science into the valuation profession—and develops valuation formulas and models that you will find useful on a daily basis. --This text refers to an alternate Hardcover edition.

From the Back Cover

The First Authoritative Guide for Valuing Businesses from a Quantitative—as Opposed to Qualitative—Perspective

Professional Praise for Jay Abrams’ Advanced Business Valuation…

" Jay Abrams’ book is close to the equivalent of several graduate dissertations rolled into one book. For each topic (covered), he presents a scholarly summary of past research, new empirical research of his own, and his conclusions. It is a well-documented contribution to in-depth understanding of important business valuation issues, and should not be overlooked by the serious practitioner." —Shannon Pratt, DBA Managing Director, Willamette Management Associates Coauthor, Valuing a Business

"A must read for the serious business appraiser." —Jay E. Fishman, ASA, CBA President, Financial Research, Inc.

"The problem of simplified valuation procedures and coherent theory still remains complex and is ever evolving. Jay Abrams deals very effectively with this complexity through the use of mathematical formulas. Input to his models is explained with clarity and effectiveness, which adds to the overall value of this advanced text on business valuation." —Terry A. Isom Chairman, National Association of Certified Valuation Analysts

"Jay Abrams’ book strives to provide mathematical modeling for what practitioners often do by reasoning alone. This book is a must read for practitioners who are searching for additional techniques for dealing with some of business valuation’s imponderables." —David M. Bishop, FIBA, BVAL, ASA, MCBA President, American Business Appraisers, Inc.

"Jay Abrams’ book will not only challenge the top theoreticians in the field; his step-by-step explanations will make advanced quantitative techniques available to the many appraisers who are not capable of independently creating the underlying mathematical analysis." —Kent Osborne, ASA Chairman, Editorial Review Board of the American Society of Appraisers

"While a proliferation of business valuation treatises and guides exists in the market, most are very general in nature and do nothing more than rehash fundamental concepts. I am unaware of any author that has stepped into the unknown as Jay Abrams has and compiled and developed a treatise of extremely useful analytical tools for the serious valuator." —Robert J. Grossman, CPA/ABV, ASA, CVA Partner, Grossman Yanak & Ford

"Jay Abrams develops unusual approaches which merit consideration when "cookie cutter" methodologies are inadequate. This manuscript contributes to the dialogue among practitioners and strengthens the theoretical foundations of business valuation." —Herbert T. Spiro President, American Valuation Group, Inc.

"There is no question about it, the use of rigorous quantitative methods is the cure for subjective valuation analysis. This book not only satisfies this need—which has grown considerably in recent years—but is chock full of new tools that have been carefully developed." —Edward Murray Valuation Partner, Arthur Andersen, LLP

Every once in a while, a researcher appears who is so innovative—and whose work is of such a groundbreaking nature—that he deserves every bit of notice he receives. Leading valuation and litigation economist Jay B. Abrams is just such a researcher, and his book Quantitative Business Valuation—the first all-inclusive guide to quantitative measurement in the valuation of privately held businesses—is equally deserving of notice.

A rigorous and eye-opening treatment filled with applications for a wide variety of scenarios in the valuation of privately held businesses, Quantitative Business Valuation emphasizes regression analysis of real world transactions: stock market returns, restricted stock discounts, and fractional interest discounts from net asset value in the secondary limited partnership market.

The book is organized into five segments. The first three follow the chronology of a valuation: forecasting cash flows, discounting to present value, and adjusting for control and marketability. In the fourth, Abrams assembles the pieces of the puzzle to present a unique and unified approach to valuation—one that can be empirically tested and applied to firms of virtually any size—along with a discussion of measuring valuation error. He concludes by covering special topics: valuation of startups, measuring the dilution in value that occurs in sales to Employee Stock Ownership Plans (ESOPs), and analysis of company buyouts of partners and shareholders (which draws upon results from ESOP valuations).

The resulting work, solidly grounded in economic theory and including all necessary mathematics, integrates existing science into the valuation profession—and develops valuation formulas and models that professional practitioners will find useful on a daily basis. A representative—but far from exhaustive—listing of other business valuation topics covered would include:

Mathematical derivation of cash flow * Application of regression analysis * Theoretical and empirical superiority of arithmetic mean * Adjusting for levels of control and marketability * Empirical tests of Abrams’ valuation theories * Valuing startups * Measuring and apportioning dilution in ESOPs

Quantitative Business Valuation is the definitive guide to quantitative measurements in the valuation process. No other book written on business valuation is as well researched, innovative, and bottom-line beneficial to practitioners. It is destined to become a standard business valuation reference for decades to come.

See all Editorial Reviews

Product Details

• Hardcover: 480 pages
• Publisher: McGraw-Hill; 1 edition (November 16, 2000)
• Language: English
• ISBN-10: 0070002150
• ISBN-13: 978-0070002159
• Product Dimensions: 11.2 x 8.8 x 1.3 inches
• Shipping Weight: 3.7 pounds
• Average Customer Review: 5.0 out of 5 stars  See all reviews (5 customer reviews)
• Amazon Best Sellers Rank: #938,646 in Books (See Top 100 in Books)

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Customer Reviews

Most Helpful Customer Reviews

47 of 47 people found the following review helpful:

5.0 out of 5 stars Well Researched Quantitative Approach to Business Valuation, December 30, 2000

By A Customer

This review is from: Quantitative Business Valuation: A Mathematical Approach for Today's Professionals (Hardcover)

Jay Abrams' book is intended primarily for the professional business appraiser, although other financial professionals such as financial analysts, investment bankers, and venture capitalists may well find the book useful.

The business valuation topics covered include (not an exhaustive list): mathematical derivation of cash flow; appplication of regression analysis; theoretical and empirical superiority of arithmetic mean; adjusting for levels of control and marketability; empirical tests of Abrams' valuation theories; valuing startups; and measuring and apportioning dilution in ESOPs.

For each topic covered, the author presents a scholarly summary of past research, new empirical research of his own, and his conclusions. He discusses opposing viewpoints and in at least one chapter allows another author to present a rebuttal of Abrams' approach.

He emphasizes regression analysis of empirical data and quantitative analysis. Near the end he puts all the pieces of the puzzle together to present a comprehensive, unified approach to valuation that can be empirically tested and whose principles work for the valuation of billion dollar firms or small businesses.

Despite the quantitative nature of the book, mathematically challenged readers without recent or extensive mathematical training should not hesitate to buy the book, as long as they are familiar with basic business valuation concepts. The book contains relatively simple and clear explanations of quantitative methods such as regression analysis; and the author has taken pains to include step-by-step procedures for performing regression analysis using Excel and Lotus. Indeed, one of the strengths of the book is that it makes quantitative techniques available to the appraiser who could not, without the author's help, understand the underlying mathematics or utilize the quantitative techniques with confidence and comprehension.

Overall the book is an important, well researched contribution to an in-depth understanding of important business valuation issues.

6 of 7 people found the following review helpful:

5.0 out of 5 stars Excellent, New Approach, June 11, 2002

By 

Charles T. Hardy (Foster City, CA United States) - See all my reviews
(REAL NAME)   

This review is from: Quantitative Business Valuation: A Mathematical Approach for Today's Professionals (Hardcover)

This text is an excellent addition to the business valuation literature. The author explores a wide variety of approaches with new methods that are easy to follow. A tremendous amount of work went into the preparation of this book and it is very well written. There is a chapter on startup companies that is especially interesting to me.

If you are at all interested in the income method for valuing businesses, I would strongly encourage you to buy this book. In a review on the back cover of the text, Shannon Pratt strongly recommends the book because the author presents "a scholarly summary of past research, new empirical research of his own, and his conclusions".

My only criticism and surprise is the lack of use of Monte Carlo simulation in these models, which is surprising to me considering how statistically focused the author is and how easy simulation is to learn and employ. Also, the use of real options for valuing startups is extremely important but the author does acknowledge this subject is beyond the scope of his book. Extremely well done and the author should be proud of producing work of this caliber. I'm looking forward to future editions and other books by Jay B. Abrams.

0 of 3 people found the following review helpful:

5.0 out of 5 stars Great Contribution, February 25, 2003

By A Customer

This review is from: Quantitative Business Valuation: A Mathematical Approach for Today's Professionals (Hardcover)

Abrams adds an important element of rigor that is sorely lacking among most valuation professionals.