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Fourth Edition
with Website
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Cover design: Wiley
Copyright © 2017 by John Wiley & Sons, Inc. All rights reserved.
Published by John Wiley & Sons, Inc., Hoboken, New Jersey.
Published simultaneously in Canada.
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Library of Congress Cataloging-in-Publication Data:
Names: Hitchner, James R., author.
Title: Financial valuation: applications and models, + website / James R. Hitchner.
Description: Fourth Edition. | Hoboken: Wiley, 2017. | Series: Wiley finance | Revised edition of the author’s Financial valuation, c2011. | Includes index.
Identifiers: LCCN 2016053398| ISBN 978-1-119-28660-8 (hardback) | ISBN 978-1-119-31231-4 (epub) | ISBN 978-1-119-31233-8 (epdf) | ISBN 978-1-119-36281-4 (obook)
Subjects: LCSH: Corporations—Valuation.
Classification: LCC HG4028.V3 H583 2017 | DDC 658.15—dc22 LC record available at
https://lccn.loc.gov/2016053398
To my son, Jason Earle Hitchner.
It’s hard to believe that almost 14 years have passed since we published the first edition of Financial Valuation: Applications and Models (FVAM). When I started this book, it was my intention to design it to accomplish two main goals. The first and most obvious one was to gather a group of respected valuation practitioners from all over the country and from the various valuation and appraisal associations to coauthor a text on valuation and to have a consensus view and presentation. Given the strong personalities of the authors, this was no easy task. As one of my coauthors said to me in the beginning, “Jim, what you are doing is equivalent to trying to herd cats.” Well, he was right. However, I believe we met this goal in all three editions, and I credit my coauthors in their willingness to be open-minded and to change their opinions when a better way was presented.
My second goal was to use this text and the companion Financial Valuation Workbook for business valuation education. Both texts are the foundation for the American Institute of Certified Public Accountants (AICPA) five-day National Business Valuation School, which is offered around the country, and the National Association of Certified Valuation Analysts (NACVA) three-day Advanced Valuation: Applications and Models course, also offered around the country. I want to thank all the instructors and staff of both organizations. What a wonderful group of people to work and consult with.
FVAM is an all-encompassing valuation text that presents the application of financial valuation theory in an easily understood manner. Although valuation theory is thoroughly discussed, the focus is on applications, models, and methods. FVAM contains numerous examples and methods that will assist the reader in navigating a valuation project, along with hundreds of short, easily understandable “ValTips.” These ValTips alert the reader to important and often controversial issues.
We have assembled 30 highly visible and well-respected valuation professionals to discuss and agree upon the proper methods of valuation and to collectively present the group’s views and positions on business valuation concepts and, most important, applications. Each author is the coauthor of the entire book. The authors come from all over the United States and Canada and are members of many professional valuation and financial associations, including the American Institute of Certified Public Accountants (AICPA), the American Society of Appraisers (ASA), the CFA Institute, the Institute of Business Appraisers (IBA), and the National Association of Certified Valuators and Analysts (NACVA). Many hold multiple designations or certifications:
Collectively, they have several hundred years of valuation and related financial experience. This text is the first time such a large group of diverse valuation practitioners has been assembled to agree on the application of valuation principles and methods. There is no other text like this. Given the often judgmental nature of valuation and the strong opinions that seem to go with being a valuation analyst, this was no easy task. We hope we continue to advance the profession by providing our agreed-upon views. We invite other practitioners to comment on this edition and/or assist in future editions of this book. We will never gain consensus in everything in the valuation profession; however, we do hope to shorten the long list of controversies and disagreements. This text represents the state-of-the-art in the business valuation profession as it evolves. This book includes basic, intermediate, and advanced topics, including:
FVAM is targeted to the following professionals and groups, who are typically exposed to financial valuation issues:
Some chapter highlights include:
This book also includes a companion website, which can be found at www.wiley.com/go/FVAM4E, which includes additional chapter addendums referenced throughout the book.
Financial valuations are very much affected by specific facts and circumstances. Consequently, the views expressed in these written materials do not necessarily reflect the professional opinions or positions that the authors would take in every business valuation assignment or in providing business valuation services in connection with an actual litigation matter. Every situation is unique, and differing facts and circumstances may result in variations of the applied methodologies. Furthermore, valuation theory, applications, and methods are continually evolving and at a later date may be different than what is presented here. Nothing contained in these written materials shall be construed as the rendering of valuation advice, the rendering of a valuation opinion, the rendering of an opinion of a particular valuation position, or the rendering of any other professional opinion or service. Business valuation services are necessarily fact-sensitive, particularly in a litigation context. Therefore, the authors urge readers to apply their expertise to particular valuation fact patterns that they encounter, or to seek competent professional assistance as warranted in the circumstances. Jim Alerding, Rosanne Aumiller, Jeff Balcombe, Neil Beaton, Melissa Bizyak, Marcie Bour, Jim Budyak, Carol Carden, Stacy Collins, Larry Cook, Don Drysdale, Ed Dupke, Jay Fishman, Chris Hamilton, Tom Hilton, Jim Hitchner, Vince Kickirillo, Mark Kucik, Eva Lang, Harold Martin, Ed Moran, Ray Moran, Kate Morris, Shannon Pratt, Ron Seigneur, Stacey Udell, Sam Wessinger, Richard Wise, Don Wisehart, Kevin Yeanoplos.
James R. Hitchner, CPA/ABV/CFF, ASA, is the managing director of Financial Valuation Advisors, Inc. in Ventnor City, New Jersey. He is also president of the Financial Consulting Group, LLC, a national association of professional services firms dedicated to excellence in valuation, financial, and litigation/forensic consulting. He is CEO of Valuation Products and Services, LLC, a company that develops educational resources for valuation analysts and fraud/forensics practitioners. He holds the American Institute of Certified Public Accountants (AICPA) specialty designations of Accredited in Business Valuation (ABV) and Certified in Financial Forensics (CFF) and is an Accredited Senior Appraiser (ASA) with the American Society of Appraisers. Mr. Hitchner has over 37 years of experience in valuation services. He has often testified as a qualified expert witness on valuations in federal and state courts in numerous states.
He has coauthored over 20 courses, taught over 60 courses, published over 100 articles, and made over 350 conference presentations and webinars. Mr. Hitchner is editor/coauthor of the book Financial Valuation Applications and Models (FVAM), 4th edition (2017), coauthor of the book Financial Valuation Workbook (FVW), 4th edition (2017), and coauthor of the book Valuation for Financial Reporting: Fair Value, Business Combinations, Intangible Assets, Goodwill, and Impairment Analysis, 3rd edition (2011)—all published by John Wiley & Sons. He is coauthor of PPC’s Guide to Business Valuations, 27th edition (2017), published by Thomson Reuters, and coauthor of A Consensus View, Q&A Guide to Financial Valuation (2016), published by Valuation Products and Services, LLC. He is editor in chief of Financial Valuation and Litigation Expert, a bimonthly journal that presents views and tools from some of the leading experts in valuation, forensics/fraud, and litigation services.
Mr. Hitchner is an inductee in the AICPA Business Valuation Hall of Fame and was twice a recipient of the AICPA’s Business Valuation Volunteer of the Year award. He was also one of the only four members of the original AICPA Business Valuation Standards Writing Task Force and served the entire six years up to the June 2007 official release of the standards. Mr. Hitchner is past chairman of the Business Valuation Committee of the Georgia Society of CPAs, past member of the AICPA Business Valuation Subcommittee, past member of the AICPA ABV Exam Committee, and past chairman of the ABV Exam Review Course Committee. He has a Bachelor of Science degree in engineering from the University of Pittsburgh and Master of Business Administration degree from Rider University.