Business Valuation Reports

There are three types of Business Valuation Reports. These Reports are not only distinguished by the Valuator’s scope of review and the amount of disclosure provided, but also by the level of assurance being provided in the conclusion, with a Comprehensive Valuation Report providing the highest as­surance and the Calculation Valuation Report providing the lowest. The three types of Valuation Reports are generally described as follows:

1. Comprehensive  – a Comprehensive Valuation Report contains a conclusion as to the value of shares, assets, or an interest in a business that is based on a comprehensive review and analysis of the busi­ness, its industry and all other relevant factors, adequately corroborated and generally set out in a detailed Valuation Report.
2. Estimate – an Estimate Valuation Report contains a conclusion as to the value of shares, assets, or an interest in a business that is based on limited review, analysis and corroboration of relevant information, and generally set out in a less detailed Valuation Report.
3. Calculation – a Calculation Valuation Report contains a conclusion as to the value of shares, assets, or an interest in a business that is based on minimal review and analysis and little or no corroboration of relevant information, and generally set out in a brief Valuation Report.

The time involvement from my perspective revolves around several key factors such as:

1. the length of time that has elapsed from the date at which fair market value must be determined and the time the determination is made. Typically, the greater the elapsed time from the relevant valuation date, the greater will be the degree of subjectivity in the conclusion;
2. the length of time the business being valued has been active and the history of its business activity (in particular, the rate of growth or decline, or consistency of operating results);
3. the financial security of the business on a stand-alone basis, as evi­denced by its balance sheet position and its historical and prospective ability to generate discretionary cash flow;
4. the predictability of prospective results based on the type of business activity, historically demonstrated forecasting ability, and susceptibility to external macro and/or micro economic influences;
5. the extent of, and rate of, technological change that likely will be faced by the business in the future;
6. the degree to which the business’ products are proprietary, the degree of market volatility for said products, and the degree of supplier/ cus­tomer dependence faced by the business;
7. the degree to which likely purchasers for the business are identifiable, and in turn the degree to which the economies of scale and other benefits that might be perceived by such purchasers reasonably can be quantified; and
8. the availability of detailed information with respect to comparable trans­actions in the open market.

 

TYPE OF REPORT	COMPREHENSIVE	ESTIMATE	CALCULATION
LEVEL OF ASSURANCE	Highest	Moderate, well-considered	Limited assurance – best estimates
LEVEL OF ANALYSIS, INVESTIGATION AND INDEPENDENT CORROBORATION	Extensive research and analysis Independent information obtained including data from third parties	Moderate Less need for independent verification, validation and industry analysis Significant reliance is placed on management, for example, the value of real estate or equipment	Limited information Not all necessary valuation procedures are performed
REPORT CONTENT	Detailed report	Less detailed report	Brief valuation report
APPROPRIATE OR BEST USE	Trial; important matters; contentious high-risk matters; public securities matters, litigation (threatened or pending) ;Where the parties relying on the report lack requisite knowledge about the business	Pre-trial proceedings; shareholder buy/sell agreements; merger and acquisition negotiations; planning purposes; income/estate planning; important matters, but where cost or time is a constraint; User of the report is comfortable with certain assumptions used due to personal knowledge about the business;	Ballpark or best estimates; preliminary estimates; initial planning purposes; internal management use; negotiations where a detailed report is not necessary; in instances where the business assets’ value is not significant to the overall financial picture
FEE RANGE, EXCLUDING HST	Over $25,000	$5,000 to $25,000	under $5,000