Level II – Intermediate Business Valuation
This course focuses on a number of valuation issues, and also delves into various tax-related matters that can impact a valuation. While at ﬁrst glance, many valuation assignments will seem unrelated to tax matters — such as a valuation of shares for an oﬀering in the open market or in the case of a fairness opinion — a number of important tax considerations are inherent in most valuation assignments. As a result, the valuator must understand the fundamental principles of the Canadian tax system on a theoretical and practical level. An integral part of the valuator’s work is to know how the organization will be taxed, which is impacted by the type of ownership and the types of income the organization is earning.
Module 1 focuses on the impact of taxation on an enterprise. In many cases, when the valuator reviews the assets and liabilities of a business to determine whether there are any value implications, it will be equally as important for them to understand the tax issues associated with those assets and liabilities. Doing so will ensure that any enhancements to value are captured, or conversely, that any contingent liabilities receive appropriate consideration. In this module, you will learn about valuing the after-tax cash ﬂow streams of a business; providing valuation services to support transactions, such as corporate reorganizations; transfer pricing; and various forms of business organization. By the end of Module 1, you will be able to:
- Compare and contrast diﬀering business structures, including sole proprietorships, partnerships, corporations, trusts, and joint ventures, syndicates, and co-ownerships
- Describe diﬀerent types of income, including (but not limited to) business, property, and investment income; and be able to identify diﬀerences in such income, including how they are earned, how they are incorporated into taxable income, and how they are taxed.
- Describe common tax assets and liabilities, discuss how they arise, and demonstrate an understanding of their impact on value calculations.
- Discuss when a transfer pricing study may be necessary, describe transaction-speciﬁc considerations when evaluating intercompany transactions, and describe the impact of intercompany transactions on value calculations.
Module 2 focuses on comparable company multiples and other valuation matters. Used as a primary approach towards valuation — or as a way to assess the reasonableness of another valuation method(s) — comparable company multiples are key tools for the valuator. By the end of this module, you will have a comprehensive understanding of comparable company multiples (precedent transactions and public company multiples), ﬁnancial statement analysis, asset based valuation approaches, and real estate and equipment valuations. By the end of Module 2, you will be able to:
- Demonstrate an in-depth understanding of the methodology (including the rationale for choosing, and the mechanics and calculations) of the public company multiple approach and the precedent transactions multiple approach.
- Demonstrate an in-depth understanding of the methodology (including the rationale for choosing, and the mechanics and calculations) of asset-based valuation approaches, including the liquidation approach and the adjusted net book value approach.
- Perform professional and technically correct calculations using the valuation approaches noted above, taking into account case-speciﬁc factors.
- Demonstrate an understanding of the signiﬁcance behind a company’s tangible asset backing, including how it can be used in a valuation, and be able to perform professional and technically correct calculations.
- Describe typical real estate and equipment valuation methodologies, and describe their eﬀect on value calculations.
Module 3 focuses on a number of taxation topics and corporate law concerns relevant to the valuation process. In this module, you will gain a comprehensive understanding of topics including majority positions and control, losses and acquisition of control, tax implications of sales of assets versus sales of shares, the Canadian Business Corporations Act, minority positions, discounts for illiquidity, portfolio discounts, special purchaser premiums and shareholder agreements. As well, the module focuses on recognizing circumstances where speciﬁc shareholdings require a discount or premium from rateable value. By the end of Module 3, you will be able to:
- Demonstrate an in-depth understanding (through calculations) of majority-control-related issues, including legal (de jure) vs. eﬀective (de facto) control, group and joint control, special-interest purchasers, and control premiums.
- Describe acquisition of control rules.
- Understand the diﬀerence in tax consequences, of a share sale vs. an asset sale, and illustrate such understanding in professional and technically correct calculations.
- Describe how trapped-in capital gains arise, and perform reasonable calculations based on given a set of facts.
- Identify and discuss issues involving minority shareholder rights, including the rights and limitations of minority shareholders, and legal remedies under the Canadian Business Corporations Act (CBCA).
- Discuss diﬀerent types of discounts, including minority (non-controlling), illiquidity, marketability, blockage, and portfolio discounts; and be able to perform professional and technically correct calculations with respect to such discounts (including incorporation into a value calculation).
- Discuss the rationale for, and perform a reasonable calculation of, a special interest purchaser premiums
The course concludes with a number of assignments intended to test and reinforce your knowledge of intermediate valuation skills. Completion of these assignments is integral to your success in this course. Suggested answers are also provided.
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