Business Valuation

• Karen Grossman Tabak• 529-9678 or Alma 529-9418 or email

tabak@maryville.edu

AgendaTime Item Purpose6:00 Housekeeping To clear up questions

6:15 Paula Hubbard To strengthen research skills

6:30 Review of Strategy To Review Material

6:45 Accounting Analysis Understand Issues

7:15 Manufactured Homes – in groups

Understand Accounting Analysis

8:30 Summary of Man. Homes

To Stress Key Points

9:00 Meet with MBA students Plan Group projects

Framework

• Business Strategy Analysis• Accounting Analysis• Financial Analysis• Prospect Analysis

Strategy Analysis

McDonalds• Competitive Strategy analysis• Industry Analysis• Corporate Strategy Analysis

Competitive Advantage

• Cost Leadership• Differentiation

Industry Analysis – Existing Firms

• Industry growth• Concentration• Differentiation• Switching costs• Scale/learning economies• Fixed-variable costs• Excess capacity• Exit Barriers

Industry Analysis – New Entrants

• Scale of economies• First mover advantage• Distribution access• Relationships• Legal Barriers

Industry Analysis - Substitute Products

• Relative price and performance• Buyers’ willingness to switch

Industry Analysis Power of Buyers/Suppliers

• Price Sensitivity• Importance of Product• Number of Buyers/Suppliers• Volume per Buyer/Supplier

Corporate Strategy Analysis

• What is the corporate structure• What is the corporate culture• Consequences of managing all business• Do economies of scope or scale exist

Achieving & Sustaining Comp Adv.

• Key risk factors with chosen strategy & resources available

• Is Comp Adv Sustainable?• Are there industry structural threats?• Is structure of firm set to sustain Comp Adv.?

Review of Questions

Accounting Analysis

• Key Changes• Useful Resources

Accounting Analysis General

• How is the economics of the business Captured in the Financial Statements

• After determining the key success factors and risks, use Financial Statement Analysis to evaluate how well the factors and risks are being managed

Financial Statements

• Who Cares about them and why• Doesn’t historical cost make them backward?• What is an asset?• Accrual Accounting?• Isn’t all just rules set by GAAP?• Flexibility• Realsitic

Steps

1. Identify Key Accounting Policies2. Look for Accounting Flexibility3. Evaluate Accounting Strategy4. Evaluate Quality of the Disclosure5. Look for red flags6. Restate Accounting number to remove distortions

Critical Accounting Theories/Principles

• Cost Benefit• Understandability• Historical Cost• Matching• Conservatism• Neutrality• Comparability & Consistency

What is an Asset

• Something of value1. Clear ownership2. High certainty of measurable benefits3. Value should be accurate

What is a Liability

• Future Obligation• Can be estimated• Footnote disclosure is often necessary

Expenses & Revenues

• Flip side• Issues are very similar