CVA (Mile2 Cybersecurity Certifications) cheat sheet

Income approach: value equals the present value of expected future economic benefits, discounted at a rate reflecting time value and risk; the discount rate must match the cash flow definition (pre-tax vs after-tax, debt-inclusive vs equity-only).

Capitalization of earnings: Value = single-period normalized earnings divided by (discount rate minus long-term sustainable growth rate); the divisor is the capitalization rate and growth must not exceed long-run nominal GDP growth.

Weighted average cost of capital: WACC = (E/V x cost of equity) + (D/V x after-tax cost of debt); use market-value weights, not book weights, and apply WACC only to debt-free cash flows.

Cost of equity via modified CAPM: cost of equity = risk-free rate + beta x equity risk premium + size premium + company-specific risk premium; the risk-free rate should match the cash flow horizon (typically 20-year Treasury).

Market approach: guideline public company method applies pricing multiples (EV/EBITDA, EV/Revenue, P/E) from comparable companies; guideline transaction method uses control premiums from M&A deals and reflects a controlling interest.

Adjustments between the market approach and a subject interest: control premium increases a minority value to control level; discount for lack of control (minority discount) and discount for lack of marketability are applied multiplicatively, not additively.

Normalization: adjust reported earnings for nonrecurring items, related-party rents, owner compensation above or below market, and non-operating assets; normalized EBITDA is the starting point for most private-company valuations.

Asset-based (cost) approach: adjusted net asset method restates assets and liabilities to fair market value; it is the floor value and is most relevant for holding companies, early-stage firms, and capital-intensive businesses.

Fair market value standard (IRS Revenue Ruling 59-60): value is the price at which property would change hands between a willing buyer and willing seller, neither under compulsion, both having reasonable knowledge of relevant facts.

Damages measure in lost-profits cases: lost revenue minus avoided costs, plus incremental costs incurred, less mitigation; the analysis must distinguish but-for profits from actual profits and avoid double counting.

Discounting damages: future lost profits are discounted to present value at a rate reflecting the plaintiff's risk, not the defendant's cost of capital; prejudgment interest may be added under applicable statute.

Daubert/Frye admissibility: expert testimony must rest on sufficient facts, reliable methodology, and reliable application; the court assesses testability, error rate, peer review, and general acceptance.

Forensic expert versus fact witness: an expert may offer opinions based on facts and data not personally observed; a fact witness testifies only to personal knowledge and cannot offer opinion testimony.

Engagement letter for litigation support must define scope, standard of value, valuation date, assumptions, limitations, and the expert's independence and compensation basis (never contingent on outcome).

Sources of forensic data: financial statements, bank and credit card records, tax returns, general ledgers, invoices, emails, and metadata; chain of custody preserves admissibility of electronic evidence.

Business interruption loss: gross earnings lost minus continuing expenses and saved costs, plus extra expense to resume operations; the period of indemnity is limited by the policy's restoration period.

Valuation date in litigation is set by the pleadings, contract, or event (breach date, marital dissolution date, death date); using the wrong date is a common basis for challenge.

Fraud triangle: pressure/incentive, opportunity, and rationalization; opportunity is the element most controllable by internal controls, and collusion defeats segregation of duties.

Beneish M-score uses eight financial ratios (days sales in receivables, gross margin, asset quality, sales growth, depreciation, SG&A, leverage, accruals) to flag earnings manipulation; higher score means higher manipulation likelihood.

Altman Z-score for public manufacturers: 1.2(WC/TA) + 1.4(RE/TA) + 3.3(EBIT/TA) + 0.6(MVE/TL) + 1.0(Sales/TA); below 1.81 is distress zone, above 2.99 is safe zone.

Benford's Law: first-digit frequency of naturally occurring data follows log10(1 + 1/d); digit 1 appears about 30.1 percent and digit 9 about 4.6 percent; deviations signal possible fabrication, not proof of fraud.

Revenue fraud red flags: revenue growing faster than cash flow from operations, growing days sales outstanding, large fourth-quarter adjustments, round-number journal entries, and unusual related-party transactions.

Asset misappropriation schemes: skimming (cash taken before recording), larceny (cash taken after recording), and fraudulent disbursements (billing, payroll, expense reimbursement, check tampering); asset misappropriation is the most common but least costly fraud type.

Three-way match in accounts payable (purchase order, receiving report, vendor invoice) and vendor master-file controls are primary defenses against billing schemes and fictitious vendors.

Net worth analysis (source and use of funds): increase in net worth plus personal expenditures minus known income equals unexplained funds; a positive result indicates possible unreported income.

Interviewing and evidence standards: admission-seeking interviews follow investigative interviews; documentary evidence should be original where possible, and workpapers must document chain of custody and conclusions.