Understanding Value Creation
Business valuation requires a solid grasp of both how value has been created prior to the valuation date, and how it will continue to be created in the future. The foundation of business valuation is the ability to understand how a company cultivates ideas or concepts and deploys its invested capital, aiming to drive returns in excess of its cost of capital. The process of value creation does not follow a single path, but rather many paths that vary by industry and the company’s position in its life cycle. Understanding this process is at the heart of our extensive valuation experience, whether we are performing a valuation analysis for financial reporting, tax, M&A, strategic planning, business restructuring, or dispute and litigation purposes.
Many have described business valuation as both an art and a science. The scientific and analytical aspect employs a variety of approaches or methods applied not only to the subject of the valuation itself, but also to the development of certain inputs into the measurement (e.g. cost of capital, discounts and premiums). The most commonly used valuation methods include the cost, market or income (DCF) approaches. While the cost approach may be applied on occasion, the income and market approaches are by far the most commonly utilized in business valuation. The income approach measures value based upon the present value of future cash flows of the business enterprise, while the market approach relies upon the application of market multiples of comparable companies or comparable transactions to the subject company.
The art of a valuation lies in the ability to apply these tools in an effective manner, utilizing professional judgment. This type of insight is gained over years of experience across the spectrum of company life cycles, industries, jurisdictions, and valuation purposes, and also calls for a deep understanding of regulators’ and other stakeholders’ requirements and expectations.
How We Can Help
We tailor the scope of our business valuations to our client’s specific needs and the purpose of the engagement. When appropriate, our valuation report provides an overview of the company, industry, economy; discusses value drivers; outlines the analysis performed, along with the inputs and assumptions; and incorporates detailed exhibits that support our valuation conclusion. The valuation analysis is sound and the report is defensible, and if challenged, we provide our clients with additional support, including serving as an expert witness at trial.
Kroll routinely assists clients with the valuation of businesses and business interests, as well as tangible and intangible assets and complex, hard to value securities. Kroll is the largest independent provider of business valuation services in the world. With over 2,000 professionals operating out of more than 70 offices worldwide, we have performed valuations of businesses and business interests, both large and small, spanning all industries for a wide variety of purposes. There is no complex valuation issue that we have not faced. Our professionals provide input on valuation implementation issues to regulatory and standard-setting bodies, including the SEC, IASB, FASB, IVSC and the OECD, and are deeply involved in valuation industry efforts to develop best practice guidance. Our professionals have the expertise and experience to satisfy any business or asset valuation needs.