Business Valuation Calculation Reports: Analyzing Assumptions in Cash Flow Forecast

Active Passive Appreciation Analysis

A settlement offer made by a husband to his wife during the course of their divorce and equitable distribution case was declined by the wife.  She subsequently hired a business valuation expert.  The Husband’s attorney hired FSS to value the business interests in the marital estate, opine on active passive appreciation issues, rebut the opinions […]

Active Efforts of Individuals in an Active Passive Analysis | William C. Dameworth

William C. Dameworth, managing member and member in charge of valuation services, discusses the need for businesses appraisers to perform active passive analyses to assist legal counsel and the court in the jurisdiction-specific process of determining what part of separate property asset appreciation caused by the efforts of individuals might be divisible.  Bill discusses helpful […]

Market Forces in an Active Passive Analysis | William C. Dameworth

William C. Dameworth, managing member and member in charge of valuation services, focuses on market forces in an active passive analysis, and how business appraisers might  approach market forces when performing an active passive analysis. Bill discusses the potential steps that can be taken to determine the increase in value caused by market forces versus […]

Causation in an Active Passive Analysis | Bill Dameworth

William C. Dameworth, managing member and member in charge of valuation services, discusses various components of an active passive analysis, and the jurisdictional differences that can exist. In this video, Bill focuses on  a common theme that runs throughout active passive analyses – causation. He also discusses the allocation of appreciation between the various factors […]

Tax Cuts and Jobs Act of 2017 Effects on Alimony Litigation | Kelly Schmid

Kelly Schmid, director of valuation services, examines how divorces executed after December 31, 2018 will be affected by the Tax Cuts and Jobs Act of 2017. Kelly discusses the numerous ways that the Act will affect how alimony is negotiated, as well its possible impact on prior divorce agreements, which should be revisited.

Tax Cuts and Jobs Act of 2017 Effects on Business Valuations | Kelly Schmid

Kelly Schmid, director of valuation services, explores how the Tax Cuts and Jobs Act of 2017 might affect businesses valuations. Kelly explains the importance of business appraisers proactively discussing with management the expected utilization of enhanced cash flows from tax savings. Kelly also discusses the need for business appraisers to consider using longer-term discounted cash […]

Depreciation & Capital Expenditures – Business Valuations | Kelly Schmid

Kelly Schmid, director of valuation services at Forensic Strategic Solutions, discusses the process of estimating depreciation expenses and capital expenditures in a cash flow forecast. She also examines how an incorrect estimate can impact a business valuation.

What Are Capital Expenditures & How Do They Depreciate? | Kelly Schmid

Kelly Schmid, director of valuation services at Forensic Strategic Solutions, explains what capital expenditures are (also known as fixed assets). She also discusses the replacement and depreciation of capital expenditures, as well as the common misconception that depreciation and capital expenditures should always be equal in a normalized cash flow forecast.

Active/Passive Appreciation in Divorce Litigation: Part Two | William C. Dameworth

Active/Passive Appreciation in Divorce Litigation: Part One | William C. Dameworth

Business Valuation for Private Companies | William C. Dameworth

Bill Dameworth, member in charge of valuation services at Forensic Strategic Solutions, discusses the differences between the valuation of privately-held and publicly-held companies and those focused on profit maximization versus tax minimization.

Business Valuation in a Divorce: Analyzing Cash Flow v. Net Income – Don’t Expect (or Give Away) What Doesn’t Exist | Kelly Schmid

When a couple is divorcing in an equitable distribution or community property jurisdiction and their assets include ownership in a closely held company, the value of the business typically must be determined. Analyzing the company’s cashflow is imperative during such a valuation. This is true whether the couple tries to establish the value themselves—with or […]

Business Valuation Calculation Reports: Analyzing Assumptions in Cash Flow Forecast | Kelly Schmid

During my over two decades of working in the valuation profession, I have valued several hundred entities and reviewed hundreds of valuation reports, including business valuation calculation reports, summary reports, and comprehensive valuation reports prepared by other experts. While I have only infrequently seen valuation theory applied incorrectly, I routinely have seen business appraisers make […]

Business Valuation in Divorce Cases in a COVID-19 World, Part I: An Overview of Active Passive Appreciation Analysis | William C. Dameworth

The impact of COVID-19 on the value of private company interests is being actively explored and discussed nationwide by business valuation professionals, their professional trade associations, and users of business valuations (e.g. attorneys). Because COVID-19 can materially impact the value of a private company, consideration must necessarily be given to the impact of COVID-19 on […]

Capital Expenditures, Depreciation and Amortization in a Cash Flow Forecast and the Impact of the New Tax Law | Kelly Schmid

The US Tax Cuts and Jobs Act (“TCJA”) passed by Congress on December 20, 2017, will impact forecasts of a company’s cash flow and thereby will likely impact the valuation of a company. One of the forecast elements impacted is the forecast of capital expenditures, depreciation and amortization. The lowering of the C Corporation income […]

Active Passive Appreciation – Active Efforts of Individuals | William C. Dameworth

As discussed previously, once it has been determined that a separate business interest appreciated in value during a marriage, learned treatises and case law often delineate the active passive analysis into the following elements: Identifying and quantifying market forces that caused the separate property appreciation. Identifying and quantifying the separate property appreciation caused by the […]

Active Passive Appreciation – Market Forces | William C. Dameworth

As discussed previously, once it has been determined that a separate business interest appreciated in value during a marriage, learned treatises and case law often delineate the active passive analysis into the following elements: Identifying and quantifying market forces that caused the separate property appreciation. Identifying and quantifying the separate property appreciation caused by the […]

Active Passive Appreciation – Causation | William C. Dameworth

The business appraiser performing an active passive appreciation analysis looks to their engaging legal counsel to define and interpret state law in the particular jurisdiction. An active passive analysis is performed when state divorce law requires a determination of whether, and under what circumstances, appreciation in otherwise separate property is classified as a divisible marital […]

Working Capital Changes in a Free Cash Flow Forecast– Part III | Kelly Schmid

Part II of my working capital blog identified methods often used by business appraisers when forecasting working capital. In this installment, I will present some additional thoughts regarding this topic. Depending on the facts and circumstances, it is typically appropriate to consider the company’s historical working capital ratios and industry working capital metrics at the composite level (e.g. total working capital), as well as each separate component of working capital (e.g. accounts receivable, inventory, accounts payable, etc.).

Working Capital Changes in a Free Cash Flow Forecast– Part II | Kelly Schmid

Part I of my working capital related blog addressed the impact on free cash flow of changes in current assets and changes in current liabilities, which are the two components that comprise working capital (calculated as current assets minus current liabilities). The combined impact of changes in current assets and changes in current liabilities equals the impact of changes in working capital on free cash flow. Part II of this blog identifies methods often used by business appraisers when forecasting working capital.

Working Capital Changes in a Free Cash Flow Forecast – Part I | Kelly Schmid

In a business valuation income approach, the income stream being capitalized (in a capitalized income method) or discounted (in a discounted income method) is often the free cash flow generated by the entity being valued. Free cash flow is typically calculated on an after-tax basis, and represents the cash available to a company’s owners after […]

Capital Expenditures, Depreciation and Amortization in a Cash Flow Forecast | Kelly Schmid

When valuing a private operating company, an appraiser is likely to use an income approach, either as the main valuation method or in conjunction with another method. Whether the appraiser capitalizes cash flows in a capitalized cash flow (“CCF”) model or uses forecasts of future cash flows in a discounted cash flow (“DCF”) model, they have incorporated both explicit and implicit assumptions into the cash flows used in their model.

Analyzing Assumptions in a Cash Flow Forecast | Kelly Schmid

Forecasts of future cash flows within the income approach to business valuation are loaded with assumptions. During my nearly two decades of business valuation experience, I have reviewed hundreds of valuation reports prepared by other experts that serve as a constant reminder that mathematical accuracy does not always equate to a reasonable value. I have seen erroneous assumptions made by business appraisers that range from illogical disconnects within the valuation to outright errors or unsubstantiated speculation. 

Adding the Value: Business Valuation Expertise in Divorce Litigation – Part Two | William C. Dameworth

In my last blog post, I explained what an active/passive appreciation study is, scenarios in which it would be conducted and the value that a business valuation expert brings to the table when performing the analysis. As a refresher, an active/passive appreciation study is often required in matrimonial litigation when an existing business or business interest is owned by one spouse prior to the marriage, or is gifted or bequeathed to one spouse during the marriage. Since we have covered the basics, we can now dive deeper and discuss the various phases and steps of an active/passive appreciation study.

Adding the Value: Business Valuation Expertise in Divorce Litigation | William C. Dameworth

When going through a divorce, determining the marital value of private business interests can often get tricky – this is especially true if one spouse has a separate ownership interest in a business. An active/passive appreciation study is often required in matrimonial litigation when an existing business or business interest is owned by one spouse prior to the marriage, or is gifted or bequeathed to one spouse during the marriage.

Pre-divorce Business Downturn Syndrome | William C. Dameworth

Reflecting back on the performance of more than 1,000 business valuations over the last 20-plus years, I have observed the regular occurrence of an economic event in many divorce-related engagements that I have named the Pre-divorce Business Downturn Syndrome (“PBDS” for short).