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Fourth Edition with Website
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Copyright © 2017 by James R. Hitchner. All rights reserved.
Published by John Wiley & Sons, Inc., Hoboken, New Jersey.
Published simultaneously in Canada.
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ISBN 978-1-119-31234-5 (Paperback)
ISBN 978-1-119-31235-2 (ePDF)
ISBN 978-1-119-31247-5 (ePub)
To my son, Jason Earle Hitchner, and my godmother, Aunt Thelma Reid.
The Financial Valuation Workbook (FVW) contains both educational exercises that guide the reader through a complete business valuation and valuation tools that professionals can use in preparing business valuations. It also contains detailed information on how to run a successful valuation practice. It is structured to be used on a standalone basis. It is also a companion text to Financial Valuation Applications and Models, 4th edition (FVAM) (John Wiley & Sons), in which the subject matter contained in the workbook is expanded upon. This workbook contains basic, intermediate, and advanced topics on valuing businesses conveyed in a series of easily understandable exercises with comprehensive answers.
FVW is targeted to the following professionals and groups that are typically exposed to financial valuation issues:
FVW contains eight chapters, each with a different purpose.
Chapter 1 contains more than 80 exercises that have been placed throughout excerpts of an actual business valuation report presenting numerous valuation topics, including rates of return, the capitalized cash flow method of the income approach, and the guideline company transaction and guideline public company methods of the market approach.
Chapter 2 contains comprehensive answers to the exercises in Chapter 1.
Chapter 3 includes more than 300 exercises that comprise a companion piece and correlate to the relevant chapters of Financial Valuation Applications and Models, 4th edition. These exercises/tests can be used to prepare for business valuation certification exams or for university professors in the academic field or as reinforcement to learn the material.
Chapter 4 includes more than 450 ValTips that are extracted from the companion book, FVAM. This summary of ValTips can serve professionals as a quick reference source of important concepts, application issues, and pitfalls to avoid.
Chapter 5 presents a Valuation Process Flowchart to allow professionals to follow a more structured process in applying and documenting the income approach.
Chapter 6 highlights strategies for marketing, managing, and making money in a valuation services practice. It discusses risk management in regard to reports and engagement letters, and gives examples of each. This chapter also includes information on how to keep up technically; find, train, and retain staff; and delegate authority.
Chapter 7 includes guidelines for practice management workflow procedures, which starts with the initial prospective client call, highlights checking points through the valuation analysis, then moves on to draft and final record, then to file retention and engagement closure.
Chapter 8 includes more than 40 checklists that can be used by professionals in documenting their valuations. It can also be used by less-experienced professionals as a guide in applying valuation concepts.
This book also includes a companion website, which can be found at www.wiley .com/go/fvamwb4e. The website includes the exhibits and forms found in Chapter 7, and the checklists found in Chapter 8.
Financial valuations are very much affected by specific facts and circumstances. As such, 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 from what is presented here.
Nothing contained in these written materials shall be construed to constitute the rendering of valuation advice; the rendering of a valuation opinion; the rendering of an opinion as to the propriety of taking 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.
Disclaimer Excluding Any Warranties: This book is designed to provide guidance to analysts, auditors, management, and other professionals, but is not to be used as a substitute for professional judgment. Procedures must be altered to fit each assignment. The reader takes sole responsibility for implementation of material from this book. The implied warranties of merchantability and fitness of purpose and all other warranties, whether expressed or implied, are excluded from this transaction, and shall not apply to this book. None of the authors, editors, reviewers, or publisher shall be liable for any indirect, special, or consequential damages.
Several people were instrumental in preparing this book. Thank you, Kate Morris, ASA, and Karen Warner and Janet Kern of Valuation Products and Services, LLC, in Ventnor City, New Jersey. You were all great.
I would also like to thank Mike Mard, CPA/ABV, of The Financial Valuation Group of Florida, Inc., for his important contributions to the first three editions of this book.
I would also like to thank all the coauthors of Financial Valuation Applications and Models, 4th edition:
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.