This week, we feature two stories & one study, each of which highlights the need to analyze venture transactions in their entirety, rather than price.
The Financial Reporting Blog
A weekly update on financial reporting topics curated by Mercer Capital’s Financial Reporting Valuation professionals.
Some valuation practitioners use a normalized risk-free rate in determining the cost of capital. This can inflate the cost of equity by up to a couple of percentage points, which in turn depresses valuation multiples. Is normalizing the risk-free rate a rational, reasonable practice? In today’s guest post, Chris Mercer suggests the answer is an emphatic no.
Applications for patents in the U.S. have nearly tripled over the past 20 years. Perhaps increased innovation, more cutthroat competitive practices, and an uptick in litigious activity surrounding idea ownership are to credit. One thing that is clear is that there are many implications of filing a patent beyond just its ability to enforce exclusivity of an idea – for founders and investors alike.
EBITDA as a universal measure of unlevered earnings may get more play than is warranted because CapEx requirements can vary widely among firms even within the same industry. Nevertheless, EBITDA is the baseline profitability measure for lenders and equity investors across many if not most industries other than financials. Creditflux held a panel discussion titled “Getting EBITDA right.” My more descriptive title after listening to the panel’s comments would be along the lines of: “Is adjusted EBITDA a hoax?”
What to do when an IPO requires too much legal work and is subject to regulation and finding a venture capital partner takes too long and is full of unknowns? Mint your own money, of course. In this case, however, companies are minting digital coins rather than churning out physical objects.
- Bankruptcy and Restructuring Advisory
- Equity-Based Compensation Valuation
- Fair Value
- Impairment Testing
- Portfolio Valuation
- Purchase Price Allocation