Application and Models

Introduction to Monte Carlo Simulation Using @RISK

Thursday, June 24, 2021 10:45 a.m. - 12:25 p.m. ET

In the world of evaluating damages, particularly as it relates to projecting future financial outcomes or those that would have occurred but for a certain event, experts must grapple with achieving a reasonable degree of certainty. Whether it be projecting future earnings of an individual or forecasting revenue and expenses for a company, financial experts cannot with 100% certainty predict financial outcomes that have not occurred or did not occur. This presentation introduces Monte Carlo simulation as a potential tool to assist in achieving that reasonable degree of certainty.

After completing this session attendees will be able to: 

  • Describe the Monte Carlo simulation
  • Recognize how Monte Carlo simulation works
  • Describe how it can be applied to analyses
  • Demonstrate a better understanding of the effects of inputs and assumptions within your analyses
  • Assess your reasonable degree of certainty.

Total CPE: 2
Fields of Study: Taxes: 2
Program Level: Overview - Learning activity level that provides a general review of a subject area from a broad perspective.

Who Should Attend:

Financial forensics experts, business valuation analysts, attorneys.

Prerequisites:

None required. These overview programs may be appropriate for professionals at all organizational levels.

Advanced Preparation:

None

David Solis

David  Solis

MSF, CVA, MAFF

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DCF Equity vs. DCF Invested Capital: Which is Preferred?

Thursday, June 24, 2021 12:40 p.m. - 2:20 p.m. ET

Many appraisers have their favorite DCF method, while others use both the equity and invested capital methods in the same engagement. In this session, we explore the subtle and not so subtle differences between these methods, whether there is a preferred method, what causes the value conclusion to differ between these methods, and reconciling conclusions from both methods.

Which method is preferred or does it matter? What causes the equity value conclusions to differ between the two methods? Should the appraisal purpose impact the method selected? How financial structure and leverage impacts each method? How do systemic changes to the business model impact each method? Can these methods complement each other?

After completing this session, attendees will be able to:

  • Identify the key causes for the equity value conclusions to differ between the two methods
  • Explain the impact of financial leverage on both methods
  • Distinguish between the primary assumptions influencing the conclusion from each method
  • Recognize how financial structure impacts each method
  • Select the most appropriate method
  • Recognize how systemic changes to the business model impact each method
  • Reconcile debt levels used in each method
  • Utilize both methods in the same engagement

Total CPE: 2
Fields of Study: Finance: 2
Program Level: Intermediate - Learning activity level that builds on a basic program most appropriate for individuals with detailed knowledge in an area.

Who Should Attend:

Business valuation experts and those charged with reviewing appraisal reports.

Prerequisites:

Previous training or research on subject matter being taught. Such persons are often at a mid-level within the organization, with operational and/or supervisory responsibilities.

Advanced Preparation:

None


Profit Margin Adjustments: The Line Between an Opinion of Value and Withdrawing from the Engagement

Thursday, June 24, 2021 3:00 p.m. - 4:40 p.m. ET

This session explains how making a profit margin adjustment to a subject company’s forecasted earnings may be an alternative to withdrawing from valuation engagements involving limited information and artificially reduced profits. Attendees will learn a theoretical framework for profit margin adjustments and work through a practical example. The presentation follows my October 2020 article in The Value Examiner and is designed to give practitioners another tool in their arsenal rather than advocate such adjustments should be applied to all situations.

After completing this session, attendees will be able to:

  • Recognize situations where profit margin adjustments may be appropriate
  • Explain the use of profit margin adjustments through the lens of the professional valuation standards
  • Generalize a conceptual framework on how to apply the technique

Total CPE: 2
Fields of Study: Finance: 2
Program Level: Intermediate - Learning activity level that builds on a basic program most appropriate for individuals with detailed knowledge in an area.

Who Should Attend:

CPAs, CVAs, MAFFs, and other practitioners who encounter situations with a disconnect between the reported earnings and the expected value of the company.

Prerequisites:

Previous training or research on subject matter being taught. Such persons are often at a mid-level within the organization, with operational and/or supervisory responsibilities.

Advanced Preparation:

None

Jason Pierce

Jason  Pierce

CPA, CMA, CFM, CVA, MAFF

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Empirical Research Regarding Discounts for Lack of Marketability

Thursday, June 24, 2021 4:55 p.m. - 5:45 p.m. ET

The appropriate amount of discount for lack of marketability (DLOM) has long been critical for valuation professionals, investors in and issuers of illiquid securities, financial statement issuers and auditors, the courts, and others. The determination of an appropriate discount has been extensively discussed and debated. Yet, before Mr. Vianellos’s research, an empirical study using defined and objective data that could actually justify a methodology for a lack of marketability discount was lacking. This session is a summary of Mr. Vianello’s research into the market evidence of discounts for lack of marketability. The session will challenge broadly used methodologies for determining discounts for lack of marketability.

After completing this session, attendees will be able to:

  • Explain the time and price risks that underlie DLOM
  • Summarize some of the limitations of restricted stock benchmarking for DLOM
  • Recognize the empirical support for probability based DLOMs combined with option pricing theory
  • Organize superior guideline company groups
  • Utilize and strengthen your DLOM conclusions
  • Test the DLOMs of opposing experts
  • Revise and improve analysis of asset fair value

Total CPE: 2
Fields of Study: Auditing: 2
Program Level: Advanced - Learning activity level that builds on a basic program most appropriate for individuals with detailed knowledge in an area.

Who Should Attend:

Valuation practitioners, valuation expert witnesses, business brokers, mergers and acquisitions professionals, financial litigators, CFOs, financial statement auditors.

Prerequisites:

Good knowledge of topic and experience in the field. Advanced level programs are often appropriate for seasoned professionals within organizations; however, they may also be beneficial for other professionals with specialized knowledge in a subject area.

Advanced Preparation:

Attendees should have an understanding of the Longstaff, Black-Scholes, and Finnerty option models. An understanding of the restricted stock "studies." An understanding of the contents of the Pluris and Stout restricted stock databases. An understanding of probability and cumulative probability.