Fall 2014 issue of Horizons

Lower Volatility – Companies with consistent operating performance and low volatility will typically enjoy higher valuations. Synergies – When several potential buyers can achieve synergistic benefits from the purchase of a company, the company will achieve a higher valuation, all else equal. Interest Rate Environment – In a low interest rate environment, potential alternative investments such as fixed income investments are less attractive, and this causes equity or company valuations to increase. RubinBrown typically employs an income and a market approach when valuing a business, and the asset approach is only used when the resulting values of the first two approaches are low and approaching the valuation “floor” provided by the asset approach (i.e. the company is worth more “dead” than “alive”).

The advantages of a market approach are that it is fairly quick to employ, is easily understood, and is based on observable market data. The primary limitation of the market approach is that it can be difficult to find information on relevant, comparable companies and transactions to help one understand the differences between the subject company and the comparable companies. The advantages of the income approach are that it can give a business owner insight into what specific factors in his business are driving value. The limitations are that the income approach is only as good as its underlying assumptions, and to the extent that the assumptions prove to be incorrect, the resulting value can also be incorrect. Because of the positive and negative attributes of the various approaches, we generally prescribe the use of more than one.

RubinBrown’s Valuation Services Group The valuation professionals at RubinBrown are specialists that focus on the valuation of public and private businesses and business interests as well as intangible assets.

Dale Lash, CFA — Denver Partner Valuation Services Group 303.952.1261 dale.lash@rubinbrown.com

Michael T. Lewis, CFA — Denver Partner Valuation Services Group 303.698.1883 michael.lewis@rubinbrown.com

Tim Farquhar, CFA, CPA — St. Louis Partner Valuation Services Group 314.290.3281 tim.farquhar@rubinbrown.com

Sunti Wathanacharoen — Kansas City Partner Valuation Services Group 913.499.4462 sunti.wathanacharoen@rubinbrown.com

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