Quantitative Business Valuation: A Mathematical Approach for Today's Professionals

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9780070002159: Quantitative Business Valuation: A Mathematical Approach for Today's Professionals

Quantitative Business Valuation is the first authoritative work to guide professionals through the business valuation process with a quantitative—as opposed to qualitative—focus. Jay Abrams’s unique methodology combines original research and mathematical material to lead readers through an integrated approach to forecasting cash flow, calculating discount rates, calculating discounts and premiums, and much more.

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From the Back Cover:

The First Authoritative Guide for Valuing Businesses from a Quantitative—as Opposed to Qualitative—Perspective

Professional Praise for Jay Abrams’ Advanced Business Valuation…

" Jay Abrams’ book is close to the equivalent of several graduate dissertations rolled into one book. For each topic (covered), he presents a scholarly summary of past research, new empirical research of his own, and his conclusions. It is a well-documented contribution to in-depth understanding of important business valuation issues, and should not be overlooked by the serious practitioner." —Shannon Pratt, DBA Managing Director, Willamette Management Associates Coauthor, Valuing a Business

"A must read for the serious business appraiser." —Jay E. Fishman, ASA, CBA President, Financial Research, Inc.

"The problem of simplified valuation procedures and coherent theory still remains complex and is ever evolving. Jay Abrams deals very effectively with this complexity through the use of mathematical formulas. Input to his models is explained with clarity and effectiveness, which adds to the overall value of this advanced text on business valuation." —Terry A. Isom Chairman, National Association of Certified Valuation Analysts

"Jay Abrams’ book strives to provide mathematical modeling for what practitioners often do by reasoning alone. This book is a must read for practitioners who are searching for additional techniques for dealing with some of business valuation’s imponderables." —David M. Bishop, FIBA, BVAL, ASA, MCBA President, American Business Appraisers, Inc.

"Jay Abrams’ book will not only challenge the top theoreticians in the field; his step-by-step explanations will make advanced quantitative techniques available to the many appraisers who are not capable of independently creating the underlying mathematical analysis." —Kent Osborne, ASA Chairman, Editorial Review Board of the American Society of Appraisers

"While a proliferation of business valuation treatises and guides exists in the market, most are very general in nature and do nothing more than rehash fundamental concepts. I am unaware of any author that has stepped into the unknown as Jay Abrams has and compiled and developed a treatise of extremely useful analytical tools for the serious valuator." —Robert J. Grossman, CPA/ABV, ASA, CVA Partner, Grossman Yanak & Ford

"Jay Abrams develops unusual approaches which merit consideration when "cookie cutter" methodologies are inadequate. This manuscript contributes to the dialogue among practitioners and strengthens the theoretical foundations of business valuation." —Herbert T. Spiro President, American Valuation Group, Inc.

"There is no question about it, the use of rigorous quantitative methods is the cure for subjective valuation analysis. This book not only satisfies this need—which has grown considerably in recent years—but is chock full of new tools that have been carefully developed." —Edward Murray Valuation Partner, Arthur Andersen, LLP

Every once in a while, a researcher appears who is so innovative—and whose work is of such a groundbreaking nature—that he deserves every bit of notice he receives. Leading valuation and litigation economist Jay B. Abrams is just such a researcher, and his book Quantitative Business Valuation—the first all-inclusive guide to quantitative measurement in the valuation of privately held businesses—is equally deserving of notice.

A rigorous and eye-opening treatment filled with applications for a wide variety of scenarios in the valuation of privately held businesses, Quantitative Business Valuation emphasizes regression analysis of real world transactions: stock market returns, restricted stock discounts, and fractional interest discounts from net asset value in the secondary limited partnership market.

The book is organized into five segments. The first three follow the chronology of a valuation: forecasting cash flows, discounting to present value, and adjusting for control and marketability. In the fourth, Abrams assembles the pieces of the puzzle to present a unique and unified approach to valuation—one that can be empirically tested and applied to firms of virtually any size—along with a discussion of measuring valuation error. He concludes by covering special topics: valuation of startups, measuring the dilution in value that occurs in sales to Employee Stock Ownership Plans (ESOPs), and analysis of company buyouts of partners and shareholders (which draws upon results from ESOP valuations).

The resulting work, solidly grounded in economic theory and including all necessary mathematics, integrates existing science into the valuation profession—and develops valuation formulas and models that professional practitioners will find useful on a daily basis. A representative—but far from exhaustive—listing of other business valuation topics covered would include:

Mathematical derivation of cash flow * Application of regression analysis * Theoretical and empirical superiority of arithmetic mean * Adjusting for levels of control and marketability * Empirical tests of Abrams’ valuation theories * Valuing startups * Measuring and apportioning dilution in ESOPs

Quantitative Business Valuation is the definitive guide to quantitative measurements in the valuation process. No other book written on business valuation is as well researched, innovative, and bottom-line beneficial to practitioners. It is destined to become a standard business valuation reference for decades to come.

From the Inside Flap:

Essential reading for the serious business appraiser, Quantitative Business Valuation, Second Edition is the definitive guide to quantitative measurements in the valuation process. No other book written on business valuation is as well researched, innovative, and bottom-line beneficial to you as a practitioner.

Written by leading valuation and litigation economist Jay B. Abrams, this text is a rigorous and eye-opening treatment filled with applications for a wide variety of scenarios in the valuation of your privately held business.

Substantially revised for greater clarity and logical flow, the Second Edition includes new coverage of:

  • Converting forecast net income to forecast cash flow

  • Damages in manufacturing firms

  • Regressing scaled y-variables as a way to control for heteroscedasticity

  • Mathematical derivation of the Price-to-Sales (PS) ratio

  • Monte Carlo Simulation (MCS) and Real Options (RO) Analysis

  • Venture capital and angel investor rates of return

  • Lost inventory and lost profits damage formulas in litigation

Organized into seven sections, the first three parts of this book follow the chronological sequence of performing a discounted cash flow. The fourth part puts it all together, covering empirical testing of Abrams' valuation theory and measuring valuation uncertainty and error. Parts five to seven round it all out with discussion of litigation, valuing ESOPs and partnership buyouts, and probabilistic methods including valuing start-ups.

The resulting work, solidly grounded in economic theory and including all necessary mathematics, integrates existing science into the valuation profession—and develops valuation formulas and models that you will find useful on a daily basis.

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