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Questions & Answers

Q: I would like to know the formula for the Other Investment in Business. My Owner Cash Flow is $3.3mil and the other investment in business value is at $9.9mil. Where is the operating capital and goodwill coming from? Thanks!

A: The Total Investment in the business and calculated Expected Valuation is the sum of Replacement Value of Business Assets, Market Value of Property, and Other Investment in Business. Or conversely the Other Investment in Business = Expected Valuation (as calculated based on return and required return on investment %) less Replacement Value of Assets less Value of Property. Basically this is saying that at the Expected Valuation there is an amount paid that is not covered by hard assets ie goodwill and other capital investment and this is the other investment in business. This value is automatically adjusted in line with the valuation. This is outlined in the mouseover comments for the the Other Investment cell. Hope this helps.

Question and Answer Item 2058244 - Browse All Question and Answer Items

Q: When I enter the inventory amount in Material and Supplies - the higher I go with this number the lower the equity goes - which does not make sense to me.

A: That is correct. As Material and Supplies costs increase profit decreases (assuming everything else is constant) so to achieve the required Return on Investment the Valuation (and Equity) decreases. This is basically saying the lower the profit the lower the value.

Question and Answer Item 2058238 - Browse All Question and Answer Items

Q: Can this software be used for the valuation insurance companies? what amendments would need to be made?

A: Yes, it is designed for small business but can be applied to any business as it simply applies a return on investment approach which is applicable in all cases. No amendments are required.

Question and Answer Item 2058213 - Browse All Question and Answer Items

Q: My question is related to ROI: I'm trying to use your model to help me develop an ROI figure based on current expenses and income plus a $200,000 investment in the business with a pessimistic retrun of 10%, expected return of %15 and optimistic return of %20. Can you tell me how to enter my data so I can obtain the ROI model?

A: I am not entirely sure what your require as if the income/expenses are set then the ROI% determines the Investment ie your $200,000? The sensitivity analysis built in to the model allows you to consider changes in your inputs to determine how sensitive the outcome is to errors. However if what I think you are trying to achieve is correct the following may help. Input the values for your business on the input sheet. On the valuation sheet set the Required Return on Investment (blue cell) at 15% the calculated Current Expected Valuation in the yellow cell below this is the valuation at 10% ROI ie if you invested this amount in the business the return would be 15%. Change the Required Return on Investment value to 10% and 20% to see your pessimistic and optimistic values. The valuation will decrease as the % is increased ie to achieve a higher return on the same profit the investment in the business must be less. Hope that helps.

Question and Answer Item 2058206 - Browse All Question and Answer Items

Q: I am looking for an investment analysis tool that I can use for justifying an investment in a new business outside the US. I have a simplistic dcf / payback analysis that is typically used for capital expenditure justification. I am looking at your "Business Valuation Model" but this doesn't seem to take into account initial and recurring capital expenditures required. Do you have a different model or models you can suggest?

A: The valuation model provides both an interest expense which reflects the cost of capital and a Depreciation Allowance which is a capital allownace based on the value of Business Assets and Asset life. So if you have operational capital requirements you can determine the cost of capital ie the interest rate appliacable if the capital was fully financed and apply this as a fixed Interest expense. If the capital relates to depreciaing assests then then it should be reflected as Depreciation (related to Assets and Asset life inputs). If you prefer you can also simply add a recurring capital requirement as an Other expense item. If the required capital varys with sales then enter it as a Varible Other item, if the required capital tends to be a fix overhead amount included it as a Fixed Other item. FYI we have just released a browser based valuation model that applies discounted cash flow to determine NPV it is based on the same methodology as the Business Valuation Model and Business Analysis Modules. It can be assessed from https://bizpep.com/businessanalysis.html re ..

Question and Answer Item 2058157 - Browse All Question and Answer Items

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