the market value of invested capital to arrive at the value of equity. If cash was deducted before the forecasted cash flows were computed, it would be added back at this point. Capitalizing Net Cash Flow to Invested Capital Exhibit 14.18 illustrates capitalizing the net cash flow to invested capital. This model assumes a 6.25 percent growth in perpetuity (a blending of the 10 percent growth for five years followed by a 5 percent growth thereafter, using a readily available computer program), and it subtracts this rate from the WACC to arrive at a capitalization rate of 6.60 percent in our case. Just as in the discounting method, when capitalizing net cash flow to invested capital, the resulting value is the market value of all invested capital. The market value of debt, as of the valuation date, is subtracted from the market value of invested capital to arrive at the value of equity. Opinion of Value The application of the two methods of the income approach (the discounted net cash flow method and the capitalized economic income method) indicates values for the equity of Opti- mum Software of $40.1 million and $40.7 million, respectively, as shown in Exhibit 14.19. The analyst normally would not employ both the discounting and capitalization methods, be- cause the capitalization method is just a shortcut version of the discounting method, and theo- retically both should produce the same answer. The difference in this case is due to rounding in estimating the capitalization rate. 208 THE INCOME APPROACH Exhibit 14.18 Optimum Software Estimation of Equity Value as of December 31, 20X4 (Capitalized Income Method) Year 1 Net cash flow to invested capital $ 2,723,734 WACC minus expected growth rate in perpetuity (1) 6.60% Indicated value of business entity $41,268,703 Less: Market value of interest bearing debt (20X4) $ 564,844 Indicated value of equity $40,703,859 Notes: (1) WACC less the growth rate = 12.85% – 6.25%. The 6.25% is a blend of the short-term growth rate of 10% for 20X5–20X9 and the long-term rate of 5% after year 20X9. Market value of debt = Book value of debt Exhibit 14.19 Indications of Equity Value Derived from the Application of the Income Approach to Valuation Method Indicated Equity Value Discounted cash flow method $40,056,893 Capitalized income method $40,703,859 Chapter 15 The Market Approach Summary The Market Approach Revenue Ruling 59-60 Emphasizes Market Approach The Guideline Publicly Traded Company and the Guideline Transaction (Merger and Acquisition) Method How Many Guideline Companies? Selection of Guideline Companies Documenting the Search for Guideline Companies Choosing Multiples Based on Objective Empirical Evidence What Prices to Use in the Numerators of the Market Valuation Multiples Choosing the Level of the Valuation Multiple Relative Degree of Risk Relative Growth Prospects Return on Sales Return on Book Value Mechanics of Choosing Levels of Market Multiples Selecting Which Valuation Multiples to Use Relevance of Various Valuation Multiples to the Subject Company Availability of Guideline Company Data Relative Tightness or Dispersion of the Valuation Multiples Assigning Weights to Various Market Multiples Sample Market Valuation Approach Tables Other Methods Classified under the Market Approach Past Transactions in the Subject Company Past Acquisitions by the Subject Company Offers to Buy Rules of Thumb Buy–Sell Agreements Conclusion Appendix: Sample Case Using Market Approach SUMMARY Although the income approach as addressed in the previous chapter is theoretically the best approach to business valuation, it requires estimates (the projections and the discount rate) that are subject to potential disagreement. The market approach is quite different in that it relies on more observable data, although there can be (and often are) disagreements as to the comparability of the guideline companies used and the appropriate adjustments to the 209 observed multiples to reach a selected multiple to apply to the subject company’s funda- mental data. THE MARKET APPROACH The market approach to business valuation is a pragmatic way to value businesses, essentially by comparison to the prices at which other similar businesses or business interests changed hands in arm’s-length transactions. It is widely used by buyers, sellers, investment bankers, brokers, and business appraisers. The market approach to business valuation has its roots in real estate appraisal, where it is known as the comparable sales method. The fundamental idea is to identify the prices at which other similar properties changed hands in order to provide guidance in valuing the property that is the subject of the appraisal. Of course, business appraisal is much more complicated than real estate appraisal because there are many more variables to deal with. Also, each business is unique, so it is more chal- lenging to locate companies with characteristics similar to those of the subject business, and more analysis must be performed to assess comparability and to make appropriate adjust- ments for differences between the guideline businesses and the subject being valued. Different variables are relatively more important in appraising businesses in some indus- tries than in others, and the analyst must know which variables tend to drive the values in the different industries. These variables are found on (or developed from) the financial statements of the companies, mostly on the income statements and balance sheets. There are also qualita- tive variables to assess, such as quality of management. REVENUE RULING 59-60 EMPHASIZES MARKET APPROACH Rev. Rul. 59-60 suggests the market approach in several places. For example: As a generalization, the prices of stocks which are traded in volume in a free and active market by informed persons best reflect the consensus of the investing public as to what the future holds for the corporations and industries represented. When a stock is closely held, is traded infrequently, or is traded in an erratic market, some other measure of value must be used. In many instances, the next best measure may be found in the prices at which the stocks of companies engaged in the same or a similar line of business are selling in a free and open market. Section 2031(b) of the Code states, in effect, that in valuing unlisted securities the value of stock or securities of corporations engaged in the same or similar line of businesses which are listed on an exchange should be taken into consideration along with all other factors. An important consideration is that the corporations to be used for comparisons have capital stocks which are actively traded by the public The essential factor is that whether the stocks are sold on an exchange or over-the-counter there is evidence of an active, free public market for the stock as of the valuation date. In selecting corporations for comparative purposes, care should be taken to use only comparable companies. Although the only restrictive requirements as to comparable corporations specified in the statute is that their lines of business be the same or similar, yet it is obvious that consideration must be given to other relevant factors in order that the most valid comparison possible will be obtained. 1 210 THE MARKET APPROACH 1 Rev. Rul. 59-60. THE GUIDELINE PUBLICLY TRADED COMPANY AND THE GUIDELINE TRANSACTION (MERGER AND ACQUISITION) METHOD When Rev. Rul. 59-60 was written (more than 40 years ago), there were no databases of trans- action information on acquisitions of entire companies. Today, while listings of publicly traded companies have been declining (to less than 7,500 as shown in Exhibit 15.1), one on- line source presents details on more than 18,000 merged or acquired companies (as shown in Exhibit 15.2). Other databases of merged and acquired companies are also available, as listed in Appendix C. Thus, the professional business appraisal community now breaks the market approach down into two methods: 1. The guideline publicly traded company method 2. The guideline transaction (merger and acquisition) method The guideline publicly traded company method consists of prices relative to underlying fi- nancial data in day-to-day trades of minority interests in active publicly traded companies, ei- ther on stock exchanges or the over-the-counter market. The guideline transaction (merger and acquisition) method consists of prices relative to underlying fundamental data in transfers of controlling interests in companies that may have been either private or public before the transfer of control. The transactions in the databases usually were done through intermediaries (business brokers, M&A specialists, or investment bankers), so they are virtually all on an arm’s-length basis. Both methods are implemented by computing multiples of price of the guideline company transactions to financial variables (earnings, sales, etc.) of the guideline companies, and then applying the multiples observed from the guideline company transactions to the same finan- cial variables in the subject company. Also generally subsumed under the market approach are the following: • Past transactions in the subject company • Bona fide offers to buy • Rules of thumb • Buy–sell agreements There is no compiled source of transactions in minority interests in private companies. The vast majority of brokers do not accept listings for minority interests in private companies be- cause there is no market for them. The fact that brokers will not even accept listings for minor- ity interests in privately held companies is evidence of the wide gulf in degree of marketability between minority interests in private companies and restricted stocks of public companies. In any method under the market approach, the price can be either the price of the common equity (equity procedure) or the price of all the invested capital (market value of invested cap- ital, or MVIC). When the invested capital procedure is used, the result is the value of all the invested capital (usually common equity and long-term debt), so the long-term debt must be subtracted in order to reach the indicated value of the common equity. If cash was eliminated for the purpose of the comparison, it should be added back. Guideline Publicly Traded Company and Guideline Transaction Method 211 212 THE MARKET APPROACH Exhibit 15.1 Number of Listed Companies: Yearly Comparison of NASDAQ, NYSE, and AMEX Text rights not available. See Exhibit 15.3 for a list of the market value multiples generally employed in the equity procedure. See Exhibit 15.4 for a list of market value multiples generally employed in the in- vested capital procedure. Neither of these lists is all-inclusive, but they include the multiples most commonly found in business valuation reports. It usually is not appropriate to use all the multiples in a single business valuation. The appraiser should select one or a few that are most relevant to the subject company. HOW MANY GUIDELINE COMPANIES? For a market approach valuation by the publicly traded guideline company method or the transaction (merger and acquisition) method, the analyst usually will select about three to seven guideline companies, although there may be more. The more data there are available for How Many Guideline Companies? 213 Exhibit 15.2 Business Valuation Guideline Merged and Acquired Company Databases Available at BVMarketData.com, Sorted by Sale Price Mergerstat ® /Shannon Pratt’s Stats TM Public Pratt’s Control Private Stats TM BIZCOMPS ® Premium Study TM Type of data Private Public Private Public Data fields per transaction 80 62 21 51 Birth year of database 1996 2000 1990 1998 Earliest transaction year 1990 1995 1992 1998 Sale Price Under $250,001 1,720 2 5,324 1 $250,001 to 500,000 640 1 1,225 3 $500,001 to $1 million 471 5 552 6 $1,000,001 to $2 million 447 9 214 33 $2,000,001 to $5 million 652 44 102 124 $5,000,001 to $10 million 585 62 21 194 $10,000,001 to $20 million 609 120 8 291 $20,000,001 to $50 million 708 258 3 627 $50,000,001 to $100 million 366 243 0 629 $100,000,001 to $500 million 146 447 0 1,206 Over $500 million 9 119 0 987 Total 6,353 1,310 7,449 4,101 Notes: All data are as of 11/4/04. BIZCOMPS sale price = Actual sale price + Transferred inventory Pratt’s Stats sale price = Equity price + Liabilities assumed = MVIC (market value of invested capital) Mergerstat/Shannon Pratt’s Control Premium Study Sale price = The aggregate purchase price given to shareholders of the target company’s common stock by the acquiring company Sources: BIZCOMPS (San Diego: BIZCOMPS) at www.BVMarketData.com Pratt’s Stats (Portland, OR: Business Valuation Resources, LLC) at www.BVMarketData.com Mergerstat/Shannon Pratt’s Control Premium Study (Los Angeles: Mergerstat LP) at www.BVMarketData.com 214 THE MARKET APPROACH Exhibit 15.3 Market Value Multiples Generally Employed in the Equity Procedure In the publicly traded guideline company method, market value multiples are conventionally computed on a per- share basis, while in the merged and acquired company methods they are conventionally computed on a total company basis. Both conventions result in the same values for any given multiple. Price/Earnings Assuming that there are taxes, the term earnings, although used ambiguously in many cases, is generally considered to mean earnings after corporate-level taxes, or, in accounting terminology, net income. Price/Gross Cash Flow Gross cash flow is defined here as net income plus all noncash charges (e.g., depreciation, amortization, depletion, deferred revenue). The multiple is computed as Price per share $10.00 = 5.1 Gross cash flow per share $1.96 Price/Cash Earnings Cash earnings equals net income plus amortization, but not other traditional noncash charges, such as depreciation. This is a measure developed by investment bankers in recent years for pricing mergers and acquisitions as an attempt to even out the effects of very disparate accounting for intangibles. The multiple is computed as Price per share $10.00 = 7.1 Cash earnings per share $1.40 Price/Pretax Earnings The multiple is computed as Price per share $10.00 = 6.0 Pretax income per share $1.67 Price/Book Value (or Price/Adjusted Net Asset Value) Book value includes the amount of par or stated value for shares outstanding, plus retained earnings. The multiple is computed as Price per share $10.00 = 5.8 Book value per share $1.72 Price/Adjusted Net Asset Value Sometimes it is possible to estimate adjusted net asset values for the guideline and subject companies, reflecting adjustments to current values for all or some of the assets and, in some cases, liabilities. In the limited situations where such data are available, a price to adjusted net asset value generally is a more meaningful indication of value than price/book value. Examples could include real estate holding companies where real estate values are available, or forest products companies for which estimates of timber values are available. This procedure can be particularly useful for family limited partnerships. Tangible versus Total Book Value or Adjusted Net Asset Value If the guideline and/or subject companies have intangible assets on their balance sheets, analysts generally prefer to subtract them out and use only price/tangible book value or price/tangible net asset value as the valuation multiple. This is to avoid the valuation distortions that could be caused because of accounting rules. On one hand, if a company purchases intangible assets, the item becomes part of the assets on the balance sheet. If, on the other hand, a company creates the same intangible asset internally, it usually is expensed and never appears on the balance sheet. Because of this difference, tangible book value or tangible net asset value may present a more meaningful direct comparison among companies that may have some purchased and some internally created assets. How Many Guideline Companies? 215 Exhibit 15.3 (Continued) Price/Dividends (or Partnership Withdrawal) If the company being valued pays dividends or partnership withdrawals, the multiple of such amounts can be an important valuation parameter. This variable can be especially important when valuing minority interests, since the minority owner normally has no control over payout policy, no matter how great the company’s capacity to pay dividends or withdrawals. The market multiple is computed as follows: Price per share $10.00 = 20 Dividend per share $0.50 This is one market multiple that is more often quoted as the reciprocal of the multiple; that is, the capitalization rate (also called the yield). The yield is computed as Dividend per share $0.50 = 5.0% yield Price per share $10.00 Price/Sales This multiple is more often used as an invested capital multiple, because all of the invested capital, not just the equity, is utilized to support the sales. If the subject and guideline companies have different capital structures, the equity price/sales can be very misleading. However, if none of the companies has long-term debt, then the equity is equal to the total invested capital, and the multiple is meaningful on an equity basis. This multiple is computed as Price per share $10.00 = 0.72 Sales per share $13.89 Price/Discretionary Earnings The International Business Brokers Association defines discretionary earnings as pretax income plus interest plus all noncash charges plus all compensation and benefits to one owner/operator. Because the multiple of discretionary earnings is normally used only for small businesses where no debt is assumed, it is usually computed on a total company basis. The multiple is computed as MVIC (or price) $10,200,000 = 4.2 Discretionary earnings $ 2,450,000 The multiple of discretionary earnings is used primarily for smaller businesses and professional practices where the involvement of the key owner/operator is an important component of the business or practice. For such businesses or practices, meaningful multiples generally fall between 1.5 and 3.5, although some fall outside that range. Source: Adapted from Shannon P. Pratt, The Market Approach to Valuing Businesses (New York: John Wiley & Sons, Inc., 2001), pp. 10–17. All rights reserved. Used with permission. each company and the greater the similarity between the guideline companies and the subject company, the fewer guideline companies are needed. The court summed up this notion in Estate of Heck, 2 which involved valuing shares of F. Korbel and Bros., Inc., a producer of champagne, brandy, and table wine. The opinion ex- plained the court’s rejection of the market approach as follows: As similarity to the company to be valued decreases, the number of required comparables increases in order to minimize the risk that the results will be distorted to attributes unique to each of the guideline companies. 216 THE MARKET APPROACH Exhibit 15.4 Market Value Multiples Generally Employed in the Invested Capital Procedure MVIC stands for market value of invested capital, the market value of all the common and preferred equity and long-term debt. Some analysts also include all interest-bearing debt. MVIC/EBITDA (Earnings before Interest, Taxes, Depreciation, and Amortization) The multiple is computed as MVIC $10,200,000 = 5.2 EBITDA $ 1,950,000 EBITDA multiples are particularly favored to eliminate differences in depreciation policies. MVIC/EBIT (Earnings before Interest and Taxes) The multiple is computed as MVIC $10,200,000 = 6.8 EBIT $ 1,500,000 EBIT multiples are good where differences in accounting for noncash charges are not significant. MVIC/TBVIC (Tangible Book Value of Invested Capital) The multiple is computed as MVIC $10,200,000 = 3.3 TBVIC $ 3,100,000 This MVIC multiple can be used on TBVIC and also with adjusted net asset value instead of book value if data are available. MVIC/Sales The multiple is computed as MVIC $10,200,000 = 1.02 Sales $10,000,000 MVIC/Physical Activity or Capacity The denominator in a market value multiple may be some measure of a company’s units of sales or capacity to produce. Analysts generally prefer that the numerator in such a multiple be MVIC rather than equity for the same reasons as the sales multiple—that is, the units sold or units of capacity are attributable to the resources provided by all components of the capital structure, not just the equity. Source: Adapted from Shannon P. Pratt, The Market Approach to Valuing Businesses (New York: John Wiley & Sons, Inc., 2001): 17–20. All rights reserved. Used with permission. 2 Estate of Heck v. Comm’r, T.C. Memo 2002-34, 83 T.C.M. (CCH) 1181. In this case, we find that Mondavi and Canandaigua were not sufficiently similar to Korbel to permit the use of a market approach based upon those two companies alone. In Estate of Hall, 3 there was one very good comparable to Hallmark Cards; it was Ameri- can Greetings. One appraiser relied entirely on American Greetings; the other appraiser used it and about 10 other consumable-product manufacturers with dominant market shares, such as Parker Pens. While acknowledging that American Greetings was an excellent comparable, the court based its conclusion on the broader list, noting that a single comparable is not neces- sarily representative of a market. The court noted: “[a]ny one company may have unique individual characteristics that may distort the comparison.” . . . A sample of one tells us little about what is normal for the population in question. In Estate of Gallo, 4 there were no other wineries available with dominant market share. Both appraisers selected distillers, brewers, soft-drink manufacturers, and other food manu- facturers with dominant market shares. The court based its conclusion entirely on the market approach, using the 10 guideline companies that both appraisers agreed were comparable. SELECTION OF GUIDELINE COMPANIES A major area of controversy in the market approach in some cases is the selection of guideline companies. There are cases where the court gave no weight whatsoever to the market ap- proach, even though both sides used it, because the court felt that the guideline companies se- lected were not adequately comparable. There are other cases where the court accepted one side’s market approach over the other’s because of inadequate comparability of companies on the side that was rejected. There are cases, such as Gallo, where the court accepted a subset of the guideline companies proffered and did its own valuation based on the subset. Rev. Rul. 59-60 uses the expression comparable companies. In recognition of the fact that no two companies are exactly alike, the business valuation professional community has adopted the expression guideline companies. There are two indexes in use today for selecting companies by line of business: 1. SIC (Standard Industrial Classification) codes 2. NAICS (North American Industrial Classification System) codes See Exhibit 15.5 for an explanation of these two classification systems. In addition, many databases (including all that are available online at BVMarketData) can be searched by a verbal description of the industry or industries of interest. Rev. Rul. 59-60 contains the language “the same or a similar line of business.” The primary criteria for similar line of business are the economic factors that impact the company’s rev- Selection of Guideline Companies 217 3 Estate of Hall v. Comm’r, 92 T.C. 312 (1989). 4 Estate of Gallo v. Comm’r, T.C. Memo 1985-363, 50 T.C.M. (CCH) 470. [...]... 18.00% 6. 00% 63 .50% 3.15 3 .60 20.40% 3. 26% 41.78% 1.42 1.81 17.00% 6. 00% 63 .60 % 3.47 3.99 19.23% 4.31% 31. 76% 1.33 1.70 16. 00% 6. 00% 60 .60 % 2.19 2 .61 16. 28% 3.03% 53. 76% 1.43 1.83 na na 52.20% 6. 46 6. 26 4.93 1.30 na na na 2 .60 43.72 3.99 80 .64 % 5.47% 28. 26% 0.39 0.10 1.77 6. 36 14.20% 18 .60 % 53.20% 1.14 0.57 44.75 2 .61 78.20% 8.88% 40.74% 0 .69 0.27 2.00 6. 96 14.00% 17.30% 49 .60 % 0.98 0.52 47 .60 % 24.77%... assets 22.87% 74. 86% 18. 76% 44. 26% 18.20% 6. 90% 12.40% 33.20% 25 .67 % 60 .66 % 16. 47% 44. 56% 18.50% 6. 70% 12.30% 32.70% 26. 54% 51.72% 17.21% 38.52% 16. 70% 6. 90% 12.30% 32.80% 26. 94% 51.04% 17. 46% 33.40% 16. 00% 8.10% 13.50% 38.30% 19 .69 % 80.20% 26. 03% 62 .25% 17.90% 8.40% 12.20% 31 .60 % 14.49% 81 .60 % 13.72% 80.50% 12.70% 80.80% 8.02% 94.10% 17.35% 79.10% 42.02% 97 .60 % 46. 02% 97.70% 50.99% 97 .60 % 50.72% 97.70%... 3 .60 75.20% 8. 86% 35.71% 0. 56 0.02 1.78 6. 79 14.20% 19.10% 54.40% 1.19 0 .63 49.84% 30.83% 28.89% 78.00% 46. 80% 123.28% 73.97% 28.53% 17.12% 100.00% 6. 20% 2.40% 2 .60 % 1 .60 % 5.70% 3 .60 % 2.00% 1.30% 48.92% 28.14% 26. 41% 60 .45% 36. 27% 92.79% 55 .68 % 25.95% 15.57% 100.00% 6. 20% 2.30% 2 .60 % 1 .60 % 5 .60 % 3.50% 2.00% 1.30% 47.79% 24.29% 23.42% 60 .10% 36. 06% 93.48% 56. 09% 22.88% 13.73% 100.00% 6. 20% 2.40% 2 .60 %... $ 565 $2,290 $ 28 $ 353 $3, 563 $3,945 $6, 234 $1,715 $3,297 $ 64 5 $5 ,65 7 $ 61 9 $ 269 $6, 544 $ 778 $ 322 $ 483 $ 161 $1,744 $ 537 $2,281 $ 28 $ 293 $3,943 $4, 263 $6, 544 $1 ,62 8 $2,813 $ 63 0 $5,070 $ 83 $ 98 $5,250 $ 758 $ 135 $ 450 $ 68 $1,410 $ 465 $1,875 $ 28 $ 343 $3,004 $3,375 $5,250 $1,925 $3,083 $ 754 $5, 761 $ 474 $ 95 $6, 330 $ 5 96 $ 78 $ 69 0 $ 78 $1,442 $ 3 46 $1,789 $ 28 $ 408 $4,105 $4,541 $6, 330... 6. 96 14.00% 17.30% 49 .60 % 0.98 0.52 47 .60 % 24.77% 23. 46% 58.04% 34.82% 80.90% 48.54% 22.92% 13.75% 100.00% 6. 20% 2.30% 2 .60 % 1 .60 % 5.50% 3.40% 2.10% 1.30% 48.57% 29 .62 % 26. 92% 68 .41% 41.05% 115.44% 69 . 26% 26. 32% 15.79% 100.00% 6. 50% 2.70% 3.00% 1.80% 5.90% 3 .60 % 2.40% 1.50% 5.78 5.40 4.40 1.28 4 .68 3. 46 49. 56 2 .63 6. 15 5.98 4 .67 1.30 5.24 4.02 19 .66 2.53 na na na na Working Capital Working capital to... 36. 7% 58.1% 15.2% 57.5 3.2 76. 5% 8.2% 34.9% 53.5% 14.5% 43.1 3 .6 75.2% 8.9% 35.7% 55 .6% 2.4% 43.7 4.0 80 .6% 5.5% 28.3% 39.4% 10.4% 44.8 2 .6 78.2% 8.9% 40.7% 68 .7% 27.3% 49.8% 30.8% 28.9% 78.0% 46. 8% 123.3% 74.0% 28.5% 17.1% 48.9% 28.1% 26. 4% 60 .5% 36. 3% 92.8% 55.7% 25.9% 15 .6% 47.8% 24.3% 23.4% 60 .1% 36. 1% 93.5% 56. 1% 22.9% 13.7% 47 .6% 24.8% 23.5% 58.0% 34.8% 80.9% 48.5% 22.9% 13.8% 48 .6% 29 .6% 26. 9%... before taxes Provision for income taxes Net income $17,045 $ 8,550 $ 8,495 $ 2,220 $ 1,020 $ 330 $ 3,570 $ 4,925 $ 62 $ 4, 863 $ 1,945 $ 2,918 $15,2 46 $ 7,788 $ 7,458 $ 2,112 $ 1,0 56 $ 264 $ 3,432 $ 4,0 26 $ 70 $ 3,9 56 $ 1,582 $ 2,374 $13,790 $ 7,200 $ 6, 590 $ 2, 160 $ 1,080 $ 120 $ 3, 360 $ 3,230 $ 75 $ 3,155 $ 1, 262 $ 1,893 $ 16, 030 $ 8,400 $ 7 ,63 0 $ 2,340 $ 1,320 $ 210 $ 3,870 $ 3, 760 $ 86 $ 3 ,67 4 $ 1,470... $ 51,477,000 $ 6, 918,000 $ 0 $ 28,903,000 $ 60 ,402,000 $111,879,000 $ 46, 198,000 $ 15,875,000 $ 0 $ 92,491,000 $ 4,302,000 $ 23,713,000 $127,001,000 $ 62 7,000 $ 0 $ 5 ,64 5,000 $ 29,3 36, 000 $ 35 ,60 8,000 $ 0 $ 35 ,60 8,000 $ 166 ,000 $ 0 $ 79,388,000 $ 91,393,000 $127,001,000 $ 64 ,66 4,000 $ 32,384,000 $ 0 $159,208,000 $ 12,352,000 $ 33 ,64 4,000 $220,1 96, 000 $ 6, 754,000 $ 0 $ 11,171,000 $ 16, 604,000 $ 34,529,000... $6, 330 $1, 963 $3,031 $ 954 $5,948 $1,157 $ 58 $7, 163 $1,199 $ 433 $ 564 $ 87 $2,282 $ 63 6 $2,918 $ 28 $ 352 $3, 865 $4,245 $7, 163 29% 49% 12% 90% 10% 0% 100% 14% 4% 8% 1% 28% 9% 37% 0% 6% 57% 63 % 100% 26% 50% 10% 86% 9% 4% 100% 12% 5% 7% 2% 27% 8% 35% 0% 4% 60 % 65 % 100% 31% 54% 12% 97% 2% 2% 100% 14% 3% 9% 1% 27% 9% 36% 1% 7% 57% 64 % 100% 30% 49% 12% 91% 7% 1% 100% 9% 1% 11% 1% 23% 5% 28% 0% 6% 65 % 72%... 381,000 $ 44,885,000 $ 166 ,000 $ 0 $ 61 ,808,000 $ 91,393,000 $127,001,000 $1,832,813 $3,058,594 $ 731,250 $5 ,62 2 ,65 6 $ 60 0,000 $ 11,719 $6, 234,375 $ 895,313 $ 232,031 $ 520,313 $ 77,344 $1,725,000 $ 564 ,844 $2,289,844 $ 28,125 $ 352, 969 $3, 563 ,438 $3,944,531 $6, 234,375 Working Capital $ 28,852,000 $ 26, 977,000 $ 56, 883,000 $124 ,67 9,000 $117,378,000 Fiscal Year Ended $3,897 ,65 6 Income Statements Sales . 291 $20,000,001 to $50 million 708 258 3 62 7 $50,000,001 to $100 million 366 243 0 62 9 $100,000,001 to $500 million 1 46 447 0 1,2 06 Over $500 million 9 119 0 987 Total 6, 353 1,310 7,449 4,101 Notes: All. market approach to business valuation is a pragmatic way to value businesses, essentially by comparison to the prices at which other similar businesses or business interests changed hands in arm’s-length. minus expected growth rate in perpetuity (1) 6. 60% Indicated value of business entity $41, 268 ,703 Less: Market value of interest bearing debt (20X4) $ 564 ,844 Indicated value of equity $40,703,859 Notes: (1)