Business Valuation Karen Grossman Tabak or Alma or

Agenda TimeItemPurpose 6:00HousekeepingTo clear up questions 6:15Paula HubbardTo strengthen research skills 6:30Review of StrategyTo Review Material 6:45Accounting AnalysisUnderstand Issues 7:15Manufactured Homes – in groups Understand Accounting Analysis 8:30Summary of Man. Homes To Stress Key Points 9:00 Meet with MBA students Plan Group projects

Framework Business Strategy Analysis Accounting Analysis Financial Analysis Prospect Analysis

Strategy Analysis McDonalds Competitive Strategy analysis Industry Analysis Corporate Strategy Analysis

Competitive Advantage Cost Leadership Differentiation

Industry Analysis – Existing Firms Industry growth Concentration Differentiation Switching costs Scale/learning economies Fixed-variable costs Excess capacity Exit Barriers

Industry Analysis – New Entrants Scale of economies First mover advantage Distribution access Relationships Legal Barriers

Industry Analysis - Substitute Products Relative price and performance Buyers’ willingness to switch

Industry Analysis Power of Buyers/Suppliers Price Sensitivity Importance of Product Number of Buyers/Suppliers Volume per Buyer/Supplier

Corporate Strategy Analysis What is the corporate structure What is the corporate culture Consequences of managing all business Do economies of scope or scale exist

Achieving & Sustaining Comp Adv. Key risk factors with chosen strategy & resources available Is Comp Adv Sustainable? Are there industry structural threats? Is structure of firm set to sustain Comp Adv.?

Review of Questions

Accounting Analysis Key Changes Useful Resources

Accounting Analysis General How is the economics of the business Captured in the Financial Statements After determining the key success factors and risks, use Financial Statement Analysis to evaluate how well the factors and risks are being managed

Financial Statements Who Cares about them and why Doesn’t historical cost make them backward? What is an asset? Accrual Accounting? Isn’t all just rules set by GAAP? Flexibility Realsitic

Steps 1.Identify Key Accounting Policies 2.Look for Accounting Flexibility 3.Evaluate Accounting Strategy 4.Evaluate Quality of the Disclosure 5.Look for red flags 6.Restate Accounting number to remove distortions

Critical Accounting Theories/Principles Cost Benefit Understandability Historical Cost Matching Conservatism Neutrality Comparability & Consistency

What is an Asset Something of value 1.Clear ownership 2.High certainty of measurable benefits 3.Value should be accurate

What is a Liability Future Obligation Can be estimated Footnote disclosure is often necessary

Expenses & Revenues Flip side Issues are very similar