ABV cheat sheet

Enterprise value = equity value + interest-bearing debt + preferred stock + noncontrolling interest − cash and non-operating assets.

Value is a function of expected future cash flows, timing, and risk; price is what a specific transaction actually produces.

Going-concern value assumes continued operations; liquidation value assumes orderly or forced disposal of assets.

Standard of value (fair market value, fair value, investment value, intrinsic value) drives assumptions and must be stated explicitly.

Premise of value (going concern, orderly liquidation, forced liquidation) is distinct from the standard of value.

Minority interests and marketability discounts derive from lack of control and lack of liquidity, not from the standard of value.

Fair market value assumes a hypothetical willing buyer and seller, both informed and not under compulsion, as of a stated date.

Control premiums and minority discounts are applied to a base value only after confirming the base reflects the appropriate level of control.

Income approach: value = present value of expected benefits, discounted at a rate consistent with the risk of those benefits.

Gordon growth: terminal value = [CF × (1+g)] / (WACC − g); g must be below the discount rate and sustainable.

Capitalized cash flow: value = next-period cash flow / (discount rate − growth rate) for a single-period perpetuity.

WACC = (E/V × Re) + (D/V × Rd × (1 − tax rate)); weights use market values, not book values.

CAPM: Re = risk-free rate + beta × equity risk premium (+ size and company-specific premiums where supported).

Market approach: guideline public company method applies pricing multiples from comparable public firms, often with DLOM.

Market approach: guideline transaction method uses multiples from actual change-of-control deals, typically implying control.

Adjusted book value restates assets and liabilities to fair value; it is most useful for asset-heavy or holding companies.

A valuation report must state the subject interest, valuation date, standard and premise of value, and intended use.

USPAP requires a scope of work consistent with the intended use and a report that is not misleading to the intended user.

An appraisal report documents assumptions, limiting conditions, data sources, and the appraiser's signed certification.

The valuation date fixes the information set; later events are generally not incorporated unless they confirm conditions existing at that date.

Reconciliation explains why the selected value is supported, weighting methods and adjusting for differences.

SSVS (AICPA) and IVS both require sufficient documentation to allow another professional to understand the work performed.

Restricted-use reports are limited to a named intended user; general-use reports are not so limited.

Hypothetical conditions and extraordinary assumptions must be clearly disclosed and their effect on value explained.

Independence requires the appraiser to have no financial or personal interest in the subject or the outcome of the valuation.

Objectivity means conclusions are based on evidence and analysis, not on the client's desired result.

Contingent fees based on the outcome of the valuation are prohibited because they compromise independence and objectivity.

Competence requires the knowledge and experience to perform the engagement; if lacking, the appraiser must decline or obtain qualified assistance.

Confidentiality: client information is not disclosed without consent except where required by law or professional standards.

Conflicts of interest must be disclosed and managed; undisclosed conflicts undermine credibility and may violate standards.

Advocacy for a client's position is inconsistent with an independent valuation opinion.

Engagement terms, including scope, fee basis, and intended use, should be documented in writing before work begins.