Business Valuation – BUSI 534

CG • Section 8WK • 11/08/2019 to 04/16/2020 • Modified 07/27/2021

Course Description

This course examines the various techniques used to evaluate businesses from a theoretical and practical standpoint.

For information regarding prerequisites for this course, please refer to the Academic Course Catalog.

Rationale

Financial managers are often tasked with evaluating a company’s worth in terms of a company’s potential buying or selling price. There are different models that may be used for this evaluation, and determining the most appropriate model to use may depend on the industry. Students earning a graduate finance degree should understand these key components.

Measurable Learning Outcomes

Upon successful completion of this course, the student will be able to:

  1. Integrate biblical principles within the context of business valuations.
  2. Prepare a business valuation report.
  3. Compare business valuation models.
  4. Calculate formulas related to business valuation.

Course Assignment

Textbook readings and lecture presentations/notes

Course Requirements Checklist

After reading the Course Syllabus and Student Expectations, the student will complete the related checklist found in the Course Overview.

Discussions

There are five (5) Discussion assignments in this course. The purpose of Discussions in an online course is to generate interaction among students regarding relevant course topics. You are required to submit a thread of at least 450 words in response to the provided prompt for each forum. For each thread, you must support your assertions with at least two (2) scholarly/professional sources (note that Investopedia and Wikipedia are not scholarly/professional sources). Your sources MUST be cited at the end of your post using proper APA format.

In addition to your original thread, you must reply to at least two (2) classmates’ threads. Each reply must be at least 250 words. Do not just say “good job” or “I learned something from your post.” Replies are not a cheering exercise. Instead, your replies must be substantial, reflecting what you learned from reading the post, offering an extension, or correcting a mistake. Use what you learned in researching for your post (or knowledge gained from other classes or personal experience) to either supplement or critique the post you are writing about. You do not have to include any references for your replies. 

Valuation Issue Assignment

Using the first four chapters in the Hitcher textbook as your primary reference, and supplemented by appropriate secondary sources, identify and discuss two (2) specific issues or challenges that valuation professionals face when attempting to properly assess the current value of a private business. Your paper should have an Introduction, two “body” parts (specific issue or challenge one and specific issue or challenge two) appropriately titled, and a Conclusion. The body parts need to clearly define the issue/challenge, fully discuss why this issue/challenge is important, and suggest what valuation professionals can do to limit the impact of the issue/challenge.

  • Assignment length: At least 750 words (excluding title page and references) in current APA format.
  • Number of citations: At least 3 (in addition to your textbook, which must be your primary references). Remember: any article/source listed in your references must be cited at least once in your paper.
  • Accepted sources: Books or other scholarly/professional sources. Remember, Investopedia, Wikipedia, websites, periodicals (e.g., newspaper, magazine, newsletters), and blogs are not scholarly/professional sources. You can use these in your paper (if properly cited), but they do not count towards the required number of citations.

Valuation Approach Assignment

Using the Hitcher textbook as your primary reference, and supplemented by appropriate secondary sources, write a research paper that compares and contrasts the three main approaches used to value a private business. Your paper should have an Introduction, five “body” parts (approach 1, approach 2 and approach 3, similarities between approaches, and differences between approaches) appropriately titled, and a Conclusion. In each of the first three body parts, you must describe the approach, note the data needed to apply the technique, and discuss limitations or challenges to properly executing the approach. In the next two sections you need to clearly demonstrate what the approaches have in common and how they differ.

  • Assignment length: 6 – 10 pages, double-spaced (excluding title page and references) in current APA format.
  • Number of citations: At least 4 (in addition to your textbook, which must be your primary references). Remember: any article/source listed in your references must be cited at least once in your paper.
  • Accepted sources: Books or other scholarly/professional sources. Remember, Investopedia, Wikipedia, websites, periodicals (e.g., newspaper, magazine, newsletters), and blogs are not scholarly/professional sources. You can use these in your paper (if properly cited), but they do not count towards the required number of citations.

Company Report

For this assignment, you must write the first part of the complete valuation report. This section of the report discusses the company, the industry in which the company operates, and the economic outlook that may impact the company’s value. The following three major topics (i.e., Business Description, Industry and Trends, and Economic Outlook) must be included in your paper (the bullet point items under each topic are suggestions; you may discuss all, some of these items, or completely different items):

Business Description

  • Description of the company, its industry, size and location
  • Brief history of the business from its inception to the current period
  • Nature of the Business
  • Products or Services
  • Key markets served
  • Key customers and/or suppliers
  • Marketing strategies
  • Key competitive strengths/weaknesses/protections/exposures
  • Business risks
  • Other

Industry and Trends

  • Major competitors
  • Growth prospects
  • Potential threats and benefits for the overall industry
  • Other

Economic Outlook

  • GDP, inflation, interest rate, unemployment, and other forecasts
  • Commodity prices and exchange rates
  • The political environment
  • Potential business tax rate changes
  • The overall state of business investment and capital spending
  • Other

The items you choose to discuss for each major topic depend on your company and what you believe is important to the valuation of the business.

  • Assignment length: At least 10 pages, double-spaced (excluding title page and references) in current APA format.
  • Number of citations: At least 6 (with a minimum of 2 articles per major topic). Remember: any article/source listed in your references must be cited at least once in your paper.
  • Accepted sources: Books or other scholarly/professional sources. Remember, Investopedia, Wikipedia, websites, periodicals (e.g., newspaper, magazine, newsletters), and blogs are not scholarly/professional sources. You can use these in your paper (if properly cited), but they do not count towards the required number of citations.

Company Report

For this assignment, you need to have your chosen company’s most recent annual report and the report two years prior to that (e.g., 2019 and 2017 or 2020 and 2018). With two years of annual reports, you will have four years of income statements (e.g., 2016, 2017, 2018 and 2019 if you have the 2017 and 2019 annual reports or 2017, 2018, 2019 and 2020 if you have the 2018 and 2020 annual reports).

Using the financial statement data in the company’s annual reports, create a comprehensive written analysis of the company’s financial operations for the four most recent fiscal years. You written report should be structured as follows:

Part I: Construct common size income statements for the four most recent fiscal years (that is why you need the two most recent annual reports). Also, include a line listing the annual growth rate in net revenue (or sales) for the four most recent years. Write an analysis of the table you created. For example: What trends do you observe? What appears to be areas of strength or weaknesses? For what areas would you like additional information? What are any potential areas of significant concern? Anything else?

Part II: Construct a table of ratios for the four most recent fiscal years (that is why you need the two most recent annual reports). Write an analysis of the ratio table you created. For example: What trends do you observe? What appears to be areas of strength or weaknesses? What are any potential areas of significant concern? Anything else?

Part III: Create a statement of cash flows table for for the four most recent fiscal years (that is why you need the two most recent annual reports). For this statement, you only need to list the three net accounts (i.e., Net Cash Flows from Operating Activities, Net Cash Flow from Investing Activities, and Net Cash Flow from Financing Activities). Then, evaluate these statements over this time period. What has been the major source of cash each year and what has been the major use of cash? Has the company generated sufficient internal cash to finance any capital spending? Anything else?

Part IV: Based on your comprehensive analysis of your chosen company, identify specific risk factors that you should consider when doing your valuation estimate.

Your paper should include an Introduction, the four “parts” listed above, and a Conclusion. Embed your tables into your paper where they flow with the discussion (that is, do not put tables in an appendix). It is best create your tables in Excel and then to copy and paste special into your word file using “Picture (Enhanced Metafile).”

  • Assignment length: At least 8 pages, double-spaced (excluding title page and references) in current APA format.
  • Number of citations: At least 3 (with a minimum of 2 articles per major topic). Remember: any article/source listed in your references must be cited at least once in your paper.
  • Accepted sources: Books or other scholarly/professional sources. Remember, Investopedia, Wikipedia, websites, periodicals (e.g., newspaper, magazine, newsletters), and blogs are not scholarly/professional sources. You can use these in your paper (if properly cited), but they do not count towards the required number of citations.

Company Report

For this assignment, you will conduct a valuation estimate for your chosen company. Your report should include (at a minimum) the following sections:

  1. Introduction
  2. Description of the valuation approaches and methods considered (note, unless you have a specific reason why one of the three valuation approaches discussed in Hitcher does not apply to your chosen company, you should apply all of the Hitchner approaches to your company valuation).
  3. Identification and evaluation of any nonoperating and/or excess assets.
  4. A risk analysis of your chosen company and an associated discussion of how applicable discounts and premiums (if any – remember, you are “assuming” that your chosen company is private) were computed.
  5. Application of valuation approaches and methods used to your chosen company (in this, the largest section of the paper, you must completely and clearly demonstrate how you derived a specific value estimate for your company using each approach; thus, you will end up with three values that will most likely not be the same).
  6. Reconciliation of the three valuation approach estimates (which is most accurate and why).
  7. For the first time in this assignment, please look up the company’s stock price on the last day of your financial data (for example, if your company’s fiscal year end is June 30 and the last data that you used in your report was June 30, 2020, look up the stock price on June 20, 2020, or the closest trading day to that date). Using that stock price, compute the market value of your chosen company. Compare that value to your reconciliation number. Which is higher? Why? What is your buy/sell recommendation based on this comparison? Why?

For this specific assignment, all relevant data tables should be included Appendices. Your tables must be clearly titled/labeled so it is easy to find the tables when they are discussed in the main body of your paper.

  • Assignment length: At least 10 pages, double-spaced (excluding title page and references) in current APA format.
  • Number of citations: At least 3 (with a minimum of 2 articles per major topic). Remember: any article/source listed in your references must be cited at least once in your paper.
  • Accepted sources: Books or other scholarly/professional sources. Remember, Investopedia, Wikipedia, websites, periodicals (e.g., newspaper, magazine, newsletters), and blogs are not scholarly/professional sources. You can use these in your paper (if properly cited), but they do not count towards the required number of citations.

Faith Integration Assignment

Complete an essay describing how the Bible is related to the topics covered in the course. The essay must include a clear integration of the Bible in relation to a course topic.

  • Assignment length: At least 500 words (excluding title page and references) in current APA format.
  • Number of citations: At least 2 (in addition to the Bible). You may use the course textbook as one of your sources. Remember: any article/source listed in your references must be cited at least once in your paper.
  • The Bible may be used as often as you would like, but it only counts as the required use of the Bible – not one of the additional scholarly/professional sources.
  • Accepted sources: Books or other scholarly/professional sources. Remember, Investopedia, Wikipedia, websites, periodicals (e.g., newspaper, magazine, newsletters), and blogs are not scholarly/professional sources. You can use these in your paper (if properly cited), but they do not count towards the required number of citations.