CBV MQE cheat sheet

Three valuation approaches: income (discounting expected economic benefits), market (comparable transactions or guideline public companies), and asset/cost (adjusted net asset or replacement cost).

Fair market value: price in an open, unrestricted market between hypothetical willing buyer and seller, both reasonably informed, neither under compulsion; differs from fair value, investment value, and intrinsic value.

Going-concern premise values an operating enterprise; liquidation premise values assets in forced or orderly disposal; premise drives approach selection and normalization.

Standard income formulas: PV = CF / (1+r)^t; Gordon growth TV = CF_(n+1) / (r - g); perpetuity with no growth = CF / r.

WACC = (E/V) x Re + (D/V) x Rd x (1 - tax rate); Re via CAPM = Rf + beta x ERP + size/company-specific premiums.

Terminal value typically dominates value in DCF: TV share = PV(TV) / total PV; test sensitivity of growth rate g below long-run nominal GDP growth.

Normalization adjustments: owner compensation to market, nonrecurring items, related-party rents, discretionary expenses, and non-operating assets stripped out and added separately.

Control vs minority and marketability: control premium, DLOM, and DLOC applied in sequence; DLOM = 1 - (1 / (1 + premium)); avoid double-counting control in cash flows and discount rate.

Asset-based value = adjusted net asset value, with tangible and identifiable intangible assets at fair value and internally generated goodwill excluded.

Revenue and earnings quality tests: revenue growth vs cash conversion, gross margin stability, accrual-to-revenue ratio, customer concentration, and working-capital trends.

Use the correct earnings base: EBITDA for capital-structure-neutral comparisons, EBIT where depreciation reflects real reinvestment, net income for equity-side methods only.

Mid-year convention: discount period = t - 0.5 for evenly spread cash flows; mid-period convention for seasonal or uneven flows.

Guideline company selection criteria: industry, size, growth, margin, capital intensity, geography, and accounting comparability; document inclusion and exclusion rationale.

Market multiples require consistency: enterprise-value multiples (EV/EBITDA, EV/EBIT, EV/Sales) paired with enterprise cash flows; P/E paired with net income to equity.

Multiples from transactions may embed control premiums and synergies; adjust before applying to a minority interest.

Discount rate build-up must match the cash flow definition: nominal rates for nominal cash flows, after-tax rates for after-tax cash flows, equity rate for equity cash flows.

Report content: standard of value, premise, valuation date, scope, sources, approaches used and rejected, key assumptions, and limiting conditions.

Reconciliation of approaches must state weights and reasons; unexplained divergence between income and market indications signals an assumption error.