Valuation Metrics

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Nov 1

Valuation Metrics

Linda Chan

November 1, 2006

Know More: Accounting fraud 2.0, Accounting fraud

The following is not meant to be legal or financial advice.

On October 13, 2006, Mark Vershal of Scale Advisors, LLC presented to attorneys in Redwood City, CA on valuation methods.

Valuations come into play when a company seeks a fairness opinion. A fairness opinion confirms the fairness of a transaction not a firm price. The bankers who prepare the fairness opinion review the deal terms and the pricing to see if the deal is fair. Often there is a range of pricing involved. The opinion looks into how the company will perform in the future. The opinion is sought to protect against shareholder suits.

A valuation report should set an exact price for the common stock. A valuation report requires a detailed review of financial results, including any liquidation preferences. The valuation report is sought to protect against IRS related issues.

The following scenarios may create difficulties in valuation: company in development stage without repeatable financial performance, consistent cash burn in balance sheet, lack of outside market valuation because no public comparables. In these instances, non-standard value metrics to use include: review of customer bookings, pipeline, backlog; partnerships and competition; expected future value; management team experience.

related entries

Freddie Mac Nov 22, 2007
100 Fastest Growing Companies Sep 10, 2007
International Financial Reporting Standards May 28, 2007
Management’s Discussion and Analysis (MD & A) Part II Oct 28, 2006
Management’s Discussion and Analysis (MD & A) Part I Oct 27, 2006

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