What is Fair Market Value?
Fair market value is defined as the highest price, expressed in terms of cash equivalents, at which property would change hands between a hypothetical willing and able buyer and a hypothetical willing and able seller, acting at arm’s length in an open and unrestricted market, when neither is under compulsion to buy or sell and when both have a reasonable knowledge of the relevant facts.
Is Fair Market Value the same as Selling Price?
Not necessarily... The price negotiated in an arm’s length transaction may differ from fair market value because of factors such as:- a purchaser’s individual perception of the business’ strengths and weaknesses;
- the level of risk associated with future cash flows;
- their access to relevant and reliable information;
- the number of interested purchasers;
- the buyer’s and seller’s respective motivations;
- the buyer’s and seller’s respective negotiating and bargaining strengths
- the form of consideration paid (cash, promissory note, earnout and similar)
What is a Rule of Thumb?
Rules of thumb, while useful, are not usually relied on to value or price a business. Rules of thumb give a rough measure of possible value and are used as a secondary method to test the fair market value otherwise calculated.
A rule of thumb is a mathematical industry specific formula that is derived from a review of prices paid to acquire business interests in a particular industry. The rule of thumb may relate price paid to such measures as earnings, revenues, gross income, assets and similar and is often expressed a multiple of that base.
Do Experts have to be Independent and Objective?
Yes, otherwise their reports are not credible in a court of law.
Our policy:
Vine Valuations Inc.’s entitlement to fees is not in any way contingent upon the valuation conclusions we reach. We do not act as auditors, consultants or otherwise provided any financial advisory services to our valuation and litigation clients or to any related companies, affiliates, owners or associates.