BACHELOR OF SCIENCE IN MANAGEMENT ACCOUNTING

Course Name: VALUATION METHODS

Course Description:
This course will provide the students with practical tools and methods to value a broad range of assets within a business entity.  It covers business valuation,
equity valuation, fixed income valuation, and option valuation.   Students should be able to utilize various capital and investment management and techniques in making
long-term business decisions such as the time value concept of money; capital investment decision factors; non-discounted and discounted capital budgeting techniques;
project screening, project ranking, and capital rationing; and sensitivity analysis.  Students should also be able to differentiate the different types and measurement of
risks and apply their relationships with the rate of returns

Credit: 3 units

Pre-requisite: Financial Markets

References:

Gary R. Trugman, (2008) Understanding Business Valuation 3 rd edition, American Institute of Certified Public Accountants, Inc.

https://egrove.olemiss.edu/cgi/viewcontent.cgi?article=1607&context=aicpa_guides
Detailed Course Outline

WK HRS TOPIC Learning Outcomes Strategies/Activities Assessment of Learning

Outcomes
Week 1 3 hrs. Overview of Business Valuation After completing this session,  Lecture  Assignment
the students should be able to:  Discussion  Quiz
1. Why are business Appraised  Video Presentation
 Mergers, acquisitions, 1. Understand the brief history
reorganizations, spin-offs, about the valuation profession.
liquidations and bankruptcy 2. Explain why businesses are
 Allocation of purchase price appraised.
(tax or financial reporting) 3. Provide some background
 Estate, gift and income about who values businesses.
taxes 4. Familiarize with the
 Marital dissolution professional appraisal
 Employee stock ownership organizations.
plans
 Buy-sell agreements
 Stockholder disputes
 Financing
 Ad valorem taxes
 Incentive stock option
considerations
 Initial public offerings
 Damage litigation
 Insurance claims
 Charitable contributions
 Fairness opinions
2. Who Values Business
 Business valuation analysts
 Accountants (CPA)
 Business brokers
 College professors
 Commercial real estate
appraisers
 Investment bankers
 The internet
3. Professional Appraisal
Organization
Week 2 3 hrs. Business Valuation Standards After completing this session,  Lecture  Assignment
the students should be able to:  Discussion  Quiz
1. Statement on standards for  Video Presentation
Valuation. 1. Familiarize with the new
2. Valuation of a business, business business valuation standard.
ownership interest, security, or 2. Familiarize with some of the
intangible asset old but yet required standards.
 Overall engagement 3. Familiarize with the
considerations standards of the other appraisal
 Development organizations.
 The valuation report
 Effective date

3. Illustration relating to litigation

and certain controversy proceedings
4. Illustration relating to tax
engagements
5. Illustrations relating to other
engagement
6. Illustrations for PFP-specific
engagements
7. Code of Professional Conduct
 Professional competence
 Due professional care
 Planning and supervision
 Sufficient relevant data
 Client interest
 Understanding with the
client
 Communication with the
client

Week 3 3 hrs. Getting Started After completing this session,  Lecture  Assignment
1. Learning about the engagement the students should be able to:  Discussion  Quiz
2. Deciding whether to accept the  Video Presentation
engagement 1. Learn about the engagement.
 Conflicts of interest 2. Decide whether to accept the
 Purpose and function of the engagement.
engagement 3. Define the engagement.
  Amount of time required to 4. Explain the initial document
do the job request.
 The scope of the assignment
 The type of report to be
issued

3. Engagement letters
 Description of the scope of
the assignment
 Detailed description of the
appraisal subject
 Standard of value that will
be used, including the
definition of that standard
 Effective date(s) of the
valuation
 Type of report that will be
issued to communicate the
value estimate
 Client responsibilities
 Method of determining fees
and the terms of payment

4. Five steps of an appraisal

assignment
 Engagement letter
considerations for litigation
report

5. The initial document request

 Using a standard checklist
 Setting up multiple
checklists

Week 4 2 ½ hrs. Appraisal Principles and Theory After completing this session,  Lecture  Assignment
the students should be able to:  Discussion  Quiz
1. Principles of Appraisal  Video Presentation
 Principle of alternatives 1. Explain the principles of
 Principle of substitution appraisal.
 Principle of future benefits 2. Explain various standards of
value.
 2. Standard of Value
 Fair Market Value
 Fair value
 Investment value
 Intrinsic value
3. How the purpose of the valuation
influences the standard of value
4. IRS influence on appraisal
Week 4 to 2 ½ hr. Data Gathering
5 the students should be able to:
1. What items affect value?
2. Internal Information
 Nonfinancial information
 Financial information
3. External Information
 Economic data
 Industry data
 General sources data
 Publicly traded guideline
company data
4. The on Site Interview
Week 5 to 2 ½ hrs. Data Analysis
6 the students should be able to:
1. Economic analysis
2. Industry analysis
3. Subject Company Analysis
4. Financial Analysis
 Comparative company
analysis
 Common size financial
statements
 Financial ratios
 Comparative industry
analysis
 Trend analysis
 Operational analysis
 Gross profit analysis
3. Explain how the purpose of
the valuation influences the
standard of value.
4. Discuss the IRS’s influence on
appraisals and expose the
reader to many of the key
revenue rulings.
After completing this session,  Lecture  Assignment
 Discussion  Quiz
 Video Presentation
1. Explain which items have an
impact on value.
2. Discuss internal information
sources for gathering data.
3. Discuss external information
sources for gathering data.
4. Understand some print and
electronic data source.
After completing this session,  Lecture  Assignment
 Discussion  Quiz
 Video Presentation
1. Explain what is economic
analysis.
2. Understand what is industry
analysis.
3. Know what subject company
analysis is.
4. Know the meaning of
financial analysis.
5.Understand and explain how
financial statement
adjustments work.
 5. Financial statement adjustments
 Conversion of cash or
income tax basis to GAAP
 Tax return adjustments
 Analysis of historical
balance sheets
 Analysis of historical income
statements
 Bardahl analysis
 Normalization adjustments
 Comparability adjustments

6. Non-operating an non-recurring
adjustments
7. Minority interest valuations

Week 6 1 ½ hr.  PRELIMINATION EXAMINATION

Week 7 3 hrs. The Market Approach- Part 1
1. Guideline public company method
 Creating a list of potential
guideline companies
 Get the business description
 Size criteria
 For those that pass muster
2. Using valuation multiples
 Price to net earnings
 Price to pretax earnings
 Price to cash flow
 Price to sales
 Price to dividend or
dividend paying capacity
 Price to book value
After completing this session,  Lecture  Assignment
the students should be able to:  Discussion  Quiz
 Video Presentation
1. Know the guideline public
company method.
2. Select potential guidelines for
companies.
3. Analyze guideline companies.
4. Explain the usage of
valuation multiples.
5. Distinguish the advantages
and disadvantages of the
guideline public company
method
6. Illustrate the guideline
company method.

3. Valuing invested capital instead of

equity
  Adjusting public company
multiples for risk
 Valuation considerations
 What price do we use in the
multiples?
 Regression analysis
 Adjusting multiples based
on SGLPTL

4. Advantages of using the guideline

public company method
5. Disadvantages of using the
guideline public

Week 8 3 hrs. The Market Approach- Part 2
1. Merger and acquisition method
 IBA market data base
 BizComps
 Pratt’s stats
 Done deals
 Public stats
 Merger stat/ Shannon
Pratt’s Control Premium
study
 Thomson financial mergers
& acquisitions (TF Mergers
& acquisitions)
 Business brokers
 Transaction analysis
 Qualitative analysis
 Quantitative analysis
After completing this session,  Lecture  Assignment
the students should be able to:  Discussion  Quiz
 Video Presentation
1. Know about the merger and
acquisition (transaction)
method.
2. Know the different private
transaction databases.
3. Know the practical
application of the merger and
acquisition method.
4. Understand the internal
transactions.
5. Understand the rules of
thumb.

2. Let’s get back to theory

 Advantages of using the
merger and acquisition
method
 Disadvantages of using the
merger and acquisition
method
 3. Internal transactions
4. Industry Method
Week 9 2 ½ hrs. The Asset Based Approach
1. Common applications of the asset
based approach
2. Advantages and disadvantages of
the asset based approach
3. Valuation methods
 Adjusted book value
method
 Liquidation value method
 Cost to create method
4. Working with other appraisers
5. how to locate and recognize
specialists
Week 9 to 3 hrs. The Income Approach
10
1. Value is from an investor’s
viewpoint
2. The income approach
 Advantages
 Disadvantages
3. Selecting benefit streams
 The nature of the business
and its capital structure
 The purpose and function of
the appraisal
 The particular subject of the
valuation
4. Using pretax or after tax
information
5. Valuing invested capital instead of
After completing this session,  Lecture  Assignment
the students should be able to:  Discussion  Quiz
 Video Presentation
1. Explain when to use the asset
based approach.
2. Explain the advantages and
disadvantages of the asset
based approach
3. Explain the adjusted book
value method.
4. Explain how to communicate
with other appraisers.
5. Explain how to find other
appraisers.
6. Know the liquidation value
method.
7. Know the cost to create
method.
After completing this session,  Lecture  Assignment
the students should be able to  Discussion  Quiz
 Video Presentation
1. Explain when to use the
income approach.
2. Distinguish the advantages
and disadvantages of using the
income approach.
3. Understand the usage of
pretax or after tax information.
4. Know valuing invested capital
instead of equity.
5. Explain the capitalization of
benefits method.
6. Understood the excess
earnings method.
7. Know the common errors in
applying the income approach.
8. Know some issues affecting
 equity pass through entities.
6. Using Cash flow instead of
earnings
7. Defining cash flow
8. Projecting future benefits streams
9. The Acceptance of forecasts and
projections
10. Income approach methods
 Capitalization of benefits
method
 Discounted future benefits
method
 Discounted future benefits
method
 The excess earnings
(Formula) method
 Control vs. Minority
 Distributing vs. non-
distributing
 Corporate or personal
income tax rates
 Holding period of the
investment
 Timing of the valuation

Week 10 2 ½ hrs. Discount and Capitalization
to 11
1. Discount rates
 Factors that affect the
selection of a discount rate
 Components of a discount
rate
 Comparing the subject
company
 Application of the discount
rate
 When all else fails, go back
to the theory
 The build-up method
 Capital asset pricing model
(CAPM)
After completing this session,  Lecture  Assignment
the students should be able to:  Discussion  Quiz
 Video Presentation
1. Explain discount and
capitalization rates in general.
2. Explain the use of pre-tax or
after tax rates.
3. Define discount rates.
4. Understand the factors that
affect the selection of a
discount rate.
5. Know the components of a
discount rate.
6. Explain the build up model.
7. Know the capital asset pricing
model.
  Other methods for
estimating a discount rate
2. Capitalization Rates
 Factors affecting the
selection of the
capitalization rate
 Sources of data on
capitalization rates
3. Deriving discount and
capitalization rates
 Applicable to net income
directly from the market
4. Back to the real world
 Using Pretax or After Tax
Rates
Week 11 2 ½ hrs. Premiums and Discounts
to 12
1. Control Premium
 Protecting the minority
owner with rights and
restrictions through
agreements
 Legal remedies
2. More control premium issues
3. Lack of control (minority)
discounts
4. Discount for lack of Marketability
(Illiquidity)
 Restricted stock studies
 More about the DLOM
 Initial Public Offering
Studies
 QMDM model
 Costs of flotation
5. Small Company Discount
6. Discount from net asset value
8. Explain the alternatives to
the build up and capital asset
pricing models.
9. Know the meaning of
capitalization rates.
10. Explain the factors that
affect the selection of a
capitalization rate.
11. Understand the data
sources for discount and
capitalization rates.
After completing this session,  Lecture  Assignment
the students should be able to:  Discussion  Quiz
 Video Presentation
1. Explain valuation premiums
and discounts, in general.
2. Know the meaning of control
premiums.
3. Explain lack of control
(minority) discounts.
4. Explain small company
discounts.
5. Understand the discounts
from net asset value.
6. Know the key person
discounts.
7. Know other discounts and
premiums.
 7. Key Person Discount
8. Blockage Discount
9. Nonvoting stock discount
10. Application of discounts and
premiums
11. Other premiums and discounts

Week 12 1 ½ hr.  MIDTERM EXAMINATION

Week 13 3 hrs. The Valuation Report After completing this session,  Lecture  Assignment
the students should be able to:  Discussion  Quiz
1. Components of a Valuation Report  Video Presentation
 Letter of transmittal 1. Explain the components of a
 Description of the valuation report.
assignment 2. Explain the types of valuation
 Assumptions and limiting reports.
conditions 3. Explain the preparation of
 Sources of information the business valuation report.
 Analysis of subject entity 4. Explain the defense of the
and related nonfinancial business valuation report.
information 5. Explain common errors in
 Financial business valuation reports.
statement/information
analysis
 Valuation approaches and
methods considered
 Valuation approaches and
methods used
 Valuation adjustments
 Non-operating assets, non-
operating liabilities, and
excess or deficient
operating assets
 Representation of the
valuation analyst
 Reconciliation of estimates
and conclusion of value
 Qualification of the
valuation analyst

2. Types of valuation reports

  Detailed reports
 Summary reports
 Calculation reports
 Oral reports

3. Preparing the business valuation

report
 Federal rules of civil
procedure
 Using your report as a
selling tool
 Using the other side’s report
to help sell your opinion
 Understanding the
weaknesses in the valuation
process
 Valuation analyst, protect
yourself

4. Defending the business valuation

report
5. Common errors in business
valuation reports
6. The reconciliation process

Week 14 3 hrs. Valuing Intangible Assets: An
Overview
1. What is intellectual property
2. Conducting a valuation of
intangible assets
 Market approach
 Income (asset) approach
 Cost approach
3. What is a remaining useful life
analysis
4. What is a reasonable royalty rate
and where do I get this stuff?
5. Importance of Fair value
measurements
After completing this session,  Lecture  Assignment
the students should be able to:  Discussion  Quiz
 Video Presentation
1. Understand the basic types
of intangible assets.
2. Understand how intangible
assets are used by the owners
of these assets.
3. Understand Some of the
common valuation assignments
requiring this type of analysis.
4. Understand some legal cases
addressing royalty rate
calculations for patent
infringement cases.
5. Understand some of the
 6. What is an “Amortization Benefit”
7. How about some more examples
 Create a lead schedule for
your analysis
 Fair value of the customer
list
 Fair value of acquired
software
 Fair value of customer
related intangibles with an
excess earning model
 Fair value of noncompete
agreements using a “with
and without” model
 Fair value of the assembled
workforce
Week 15 2 hrs. Estate and Gift Valuations
1. Penalties for undervaluation on
estate and gift tax returns
2.Penalties against appraisers
3. Case Law
4. The Valuation Report
5. The family limited partnership
report
Week 15 3 hrs. Divorce Valuations
to 16
1. The role of the valuation analyst
2. Definition of value
 Fair market value
 Intrinsic value
 Fair value
 What do the definitions
really mean in a divorce
context
background of valuing
intangibles independently.
6. Understand issues of
remaining useful life and
intangible life cycles.
7. Explain where to look for
market information for royalty
rates.
8. Understand some of the
emerging concepts of fair value
in financial reporting.
9. Know how an allocation
assignment of separable
intangible assets is
distinguished from unallocated
goodwill.
After completing this session,  Lecture  Assignment
the students should be able to:  Discussion  Quiz
 Video Presentation
1. Explain valuation rules for
estate and gift tax purposes.
2. Explain valuing family limited
partnerships (and Similar
entities) for gift tax purposes.
3. Know what court cases that
you need to be aware of.
4. Know how to do your job
properly.
After completing this session,  Lecture  Assignment
the students should be able to:  Discussion  Quiz
 Video Presentation
1. Explain the role of the
valuation analyst.
2. Explain standards of value
and their unique aspects in
divorce assignments.
3. Know the different valuation
dates used in these
assignments.
 3. Valuation Dates
 Date of the marriage
 Date of a gift or inheritance
 Date of the separation
 Date of the divorce
complaint
 Date agreed to by the
parties
 Date of the trial
4. Valuation methods
5. Valuation as of specific date
6. Data gathering and analysis
 Gathering financial data
4. Know how to normalization
process differs in divorce
assignments.
5. Explain the valuing
professional practices for
divorce assignments.
6. Understand the difference
between personal and
enterprise goodwill.
7. Know how noncompete
agreements affect values in the
distribution of marital property.

7. The valuation process

8. Normalizing the financial
statements
 Unreported revenues
 Stockholder loans
 Income taxes

9. Explaining the valuation

10. Reaching a conclusion of value
11. Divorce Valuation of professional
practices
 Professional practices
versus regular business
enterprise
 Divorce valuations and the
market can be very different
 Financial information
 Professional versus practice
goodwill

12. Noncompete agreements

13. Valuation of other marital assets
 Professional Licenses
 Celebrity Goodwill

Week 16 3 hrs. Professional Practice Valuations After completing this session,  Lecture  Assignment
 to 17
1. Why are professional practice
valued
2. characteristics of the professional
practice
3. Professional practice versus other
business valuations
 Buy-sell agreements
 Internal transactions
 External transactions
 Subsequent events
 More about professional
practice versus other
business valuations
4. The valuation process
 History of the practice
 Economy and industry
information
 Cash versus accrual
accounting
5. Valuation calculations-unique
aspects of the calculations
 Rules of thumb
 Statutory rule value
 Asset based approach
Week 17 2 ½ hrs. Shareholder Disputes
to 18
1. Dissenting shareholder matters
2. Oppressed shareholder matters
3. Fair value
4. The valuation date
5. Fair value methodology
the students should be able to:  Discussion  Quiz
 Video Presentation
1. Know the reasons for valuing
professional practices.
2. Know the characteristics of a
professional practice.
3. Distinguish between
professional practice valuations
and other types of businesses.
4. Understand the engagement
specific matters.
After completing this session,  Lecture  Assignment
the students should be able to:  Discussion  Quiz
 Video Presentation
1. Explain what causes
shareholder disputes.
2. Explain the difference
between dissenting and
oppression case.
3. Explain the impact of case
law on the standard of value.
4. Understand the valuation
methodologies accepted by the
courts.
Week 18 1 ½ hr.  FINAL EXAMINATION
18 Weeks 54 hrs.