Valuation & Litigation Advisory Blog

This month's issue of Valuation & Litigation Advisory Insights includes the following articles:

• Growth rate becomes critical to lost profits calculation
• In the battle of experts, one weapon simply isn't enouth
• Tax Court to valuators: Explain yourself!

Growth rate becomes critical to lost profits calculation

In commercial cases involving lost profits, selecting an appropriate growth rate is a critical step in calculating damages. It’s also one of the most challenging. Depending on the amount at stake and the length of the damages period, adjusting the growth rate by just a few percentage points can have a significant effect on the outcome. This article looks at one lost profits case in which the court found that the plaintiff’s expert’s general approach was sound but that his method of selecting the growth rate wasn’t. A sidebar discusses one of the court’s criticisms in particular.

In the battle of experts, one weapon simply isn’t enough

Business appraisers generally consider several valuation methods in reaching a value conclusion. In one case in Delaware, a court found the petitioner’s valuation expert to be “totally, completely unreliable,” in large part because she’d relied exclusively on one valuation technique. This article discusses the three most common valuation approaches and the importance of using multiple valuation methods whenever possible to support value conclusions. 

Tax Court to valuators: Explain yourself!

Courts today no longer accept valuation experts’ opinions without careful scrutiny.  This article discusses one case in which the court found that the estate expert’s valuation erroneously relied primarily on the discounted cash flow (DCF) method and “tax affected” the company’s earnings — that is, reduced the company’s projected earnings to reflect an assumed corporate tax burden. A sidebar discusses whether it’s advisable or not to tax affect earnings.

Prior issues are available in the E-Newsletter Archive of our Valuation & Litigation Advisory Services Resource Center. If you would like to subscribe to this free, monthly, business valuation and litigation support e-newsletter, send an email to info@skodaminotti.com.

If you have any questions about any of these articles, post a comment below or please contact our Valuation & Litigation Advisory Services Group at 440-449-6800.