VI cheat sheet

Define value explicitly: fair market value, fair value, investment value, and intrinsic value can produce different conclusions on identical facts.

Highest and best use is the use that is legally permissible, physically possible, financially feasible, and maximally productive.

Going-concern premise assumes continued operations; liquidation premise assumes orderly or forced disposition of assets.

Value is a function of future benefits discounted to present value; cost does not establish value, only a floor or ceiling reference.

Standards of value are distinct from levels of value: control versus minority, and marketable versus nonmarketable, are separate adjustments.

Premise of value and standard of value must be stated before selecting an approach; the choice drives method selection and discounts.

Independence requires disclosure of fee arrangements, prior engagements, and any contingent compensation that could bias the conclusion.

Report content must permit a reader to replicate the analysis: scope, sources, assumptions, and limiting conditions are all required.

Fair value under accounting standards is an exit price in an orderly transaction between market participants at the measurement date.

Fair value hierarchy: Level 1 quoted prices in active markets; Level 2 observable inputs; Level 3 unobservable inputs.

Acquisition method: identify the acquirer, determine the acquisition date, recognize identifiable assets and liabilities at fair value, recognize goodwill as the residual.

Goodwill equals consideration transferred plus noncontrolling interest plus prior interest, less net identifiable assets acquired.

Impairment testing compares carrying amount to recoverable amount, defined as the higher of fair value less costs of disposal and value in use.

Intangible assets are recognized separately from goodwill only if they are identifiable, meaning separable or arising from contractual or legal rights.

Accrual accounting matches revenues to the expenses incurred to generate them; cash flows differ from earnings by noncash items and working capital.

Contingent consideration is measured at fair value at acquisition and remeasured through earnings if classified as a liability.

Income approach converts expected future cash flows to present value; methods include DCF, capitalization of earnings, and residual income.

Capitalization rate equals discount rate minus expected long-term growth, applied to a single normalized benefit stream.

Terminal value via perpetuity growth equals final-year cash flow times (1+g) divided by (discount rate minus g).

WACC equals after-tax cost of debt times debt weight plus cost of equity times equity weight, using market value weights.

Cost of equity via CAPM equals risk-free rate plus beta times the equity risk premium, plus any size or company-specific premium.

Market approach uses comparable transactions or guideline public companies; multiples must be matched to the same benefit measure, such as EV/EBITDA.

Asset-based approach restates assets and liabilities to fair value; it is most relevant for holding companies and asset-intensive or nonoperating entities.

Mid-year convention discounts cash flows as if received mid-period, raising value relative to end-of-year discounting.

Normalize earnings by removing nonrecurring items, adjusting owner compensation to market, and eliminating nonoperating income and expense.

Enterprise value equals equity value plus debt plus preferred stock plus noncontrolling interest, minus cash; multiples must be applied consistently.

Control premium plus minority discount are not exact reciprocals; apply one consistent adjustment rather than compounding both.

Discount for lack of marketability reflects restricted salability; sources include restricted stock studies and pre-IPO price studies.

Relief-from-royalty values an intangible as the present value of royalties avoided, using a market-derived royalty rate over the remaining useful life.

Multi-period excess earnings method values the primary intangible as residual cash flow after contributory asset charges for working capital, fixed assets, and other intangibles.

With-and-without method compares enterprise value with and without the asset; the difference is the asset's value.

Useful life for an intangible may be contractual, legal, economic, or indefinite; indefinite does not mean infinite and requires impairment testing.

Cost approach: replacement cost new less physical deterioration, functional obsolescence, and economic obsolescence equals depreciated replacement cost.

Market extraction derives depreciation from sales of comparable assets: total depreciation equals cost new minus sale price.

Economic obsolescence is external to the asset and is typically applied after physical and functional deductions.

Bond value equals present value of coupon payments plus present value of principal, discounted at the market yield for comparable risk.

A bond trades at a premium when its coupon exceeds market yield, at a discount when the coupon is below market yield.

Duration measures price sensitivity to yield changes; modified duration approximates percentage price change for a one percent yield change.

Preferred stock value approximates a perpetuity: annual dividend divided by required rate of return, adjusted for call or participation features.

Real property valuation via income capitalization divides net operating income by an overall capitalization rate derived from market comparables.