Value Definitions
Machinery & Equipment Definitions
> Liquidation Value In Place – The estimated gross amount expressed in terms of money which is projected to be obtainable from a failed facility assuming that the entire facility would be sold intact within a limited time to complete the sale.
> Orderly Liquidation Value – The estimated gross amount expressed in terms of money which could be typically realized from a sale, given a reasonable period of time to find a purchaser, the seller being compelled to sell on an as is-where is basis.
> Forced Liquidation Value – The estimated gross amount expressed in terms of money which could be typically realized from a properly advertised and conducted public sale with the seller being compelled to sell with a sense of immediacy on an as is-where is basis. Typically, the time frame of sale is 90 days or less.
> Salvage Value – The amount expressed in terms of money that may be expected for the whole property or a component of the whole property that is retired from service for use elsewhere.
> Scrap Value – The amount expressed in terms of money that could be realized for the property if it were sold for its material content, not for productive use.
> Depreciated Reproduction Cost – Reproduction cost new, less accrued depreciation.
> Fair Market Value in Continued Use – The estimated amount expressed in terms of money that may reasonably be expected for a property in exchange between a willing buyer and a willing seller with equity to both, neither under any compulsion to buy or sell and both fully aware of all relevant facts including installation and assuming that the earnings support the value reported.
> Fair Market Value Removal – The estimated amount expressed in terms of money that may reasonably be expected for an item of property between a willing buyer and a willing seller with equity to both, neither under any compulsion to buy or sell and both fully aware of all relevant facts considering removal of the property to another location
> Insurance Replacement Cost – The replacement cost new as defined in the insurance policy, less the cost new of the items specifically excluded in the policy, if any.
> Liquidation Value in Place – The estimated gross amount expressed in terms of money which is projected to be obtainable from a failed facility assuming the entire facility would be sold intact within a limited time to complete the sale.
> Replacement Cost New – The current cost of a similar new machine having the nearest equivalent utility as the machine being valued.
> Reproduction Cost New – The cost of reproducing a new replica of a machine on the basis of current prices with the same or closely similar materials.
Real Estate Definitions
> Real Property – The interests, benefits, and rights inherent in the ownership of real estate.
> Fee Simple Interest – Absolute ownership unencumbered by any other interest or estate subject only to the four powers of government.
> Leasehold Interest – The right to use and occupy real estate for a stated term and under certain conditions; conveyed by a lease.
> Leased Fee Interest – An ownership interest held by a landlord with the right of use and occupancy conveyed by lease to others; the rights of lessor or the leased fee owner and leased fee are specified by contract terms contained within the lease.
> Highest and Best Use – The reasonably probable and legal use of vacant land or an improved property, which is physically possible, appropriately supported, financially feasible, and that results in the highest value.
> Forced Liquidation Value – The price a property will bring if exposed for immediate sale on the open market. Both the buyer and seller have knowledge of the uses and purposes to which it is adapted and for which it is capable of being used.
> Fair Value – The cash price that might reasonably be anticipated in a current sale under all conditions requisite to a fair sale. A fair sale means that the buyer and seller are each acting prudently, knowledgeably, and under no necessity to buy or sell.
> Excess Land – Land in excess of that needed to support the improvements under typical or normal expectations for the neighborhood or market. Such land can usually be sold or developed without adversely affecting the value of the existing improvements.
> Overall Capitalization Rate (OAR) – An income rate for the total property that reflects the relationship between a single year’s net operating income expectancy and the total property price or value; it is used to convert net operating income into an indication of overall property value.
> Discount Rate – a rate of return commensurate with perceived risk used to convert future payments or receipts to present value.
> Functional Obsolescence – A loss of value normally due to deficiencies within the premises itself that impair the optimum use of the property. Causes for such losses in value include poor floor plan or design, functional inadequacy, or overcapacity.
> External Obsolescence – A loss in value stemming from influences outside the property itself and over which the owner has no control. Some examples of such influences are population shifts, significant changes in the economy that may reduce the market for a certain property, transitions in the character of the land development, excessive taxes, governmental restrictions, or adverse economic trends.
> Leasehold Estate – The right to use and occupy real estate for a stated term and under certain conditions; conveyed by a lease. This is typically an ownership interest held by a tenant.
> Fractional Interest – Divided or undivided rights in real estate that are less than the whole. Usually used in the context of a tenant in common, where there is shared ownership for a 100% interest in real estate.
> Insurable Value – The insurable value of the property is the replacement cost of the improvements, net of entrepreneurial profit.
Finance & Business Valuation Terms
> Capital Stock – Liability of the corporation to its shareholders, after creditors’ claims have been liquidated.
> Minority Discount – An amount or percentage deducted from a majority of controlling equity interest to reflect a minority or lack of control.
> Goodwill – That intangible asset which arises as a result of name, reputation, customer patronage, location, products and similar factors that have not been separately identified and/or valued but which generate economic benefits.
> Book Value – Net worth for balance sheet purposes—total assets minus total liabilities.
> Adjusted Book Value – The new book value which results after one or more asset or liability amounts are added, deleted, or changed from their booked cost.
> Common Stock – Ordinary capital stock in a company without a definite dividend rate or the privileges of preferred stock, but usually giving its owners a vote at shareholders’ meetings in proportion to their holdings.
> Preferred Stock – Capital stock that pays dividends at a specified rate and that has preference over the common stock in payment of dividends and the liquidation of assets.
> Working Capital – Cash available for use in business measured as the difference between current assets and current liabilities.
> Going Concern Value – This term refers to the company’s value with the assumption of continued use and operation. This is more of a premise than a definition. However, the definition is also used for intangible assets of a business.
> Investment Value – The value of an asset or business to a specific owner or prospective owner. Accordingly, this type of value considers the owner’s or prospective owner’s knowledge, abilities, expectations of risks and earning potential, and other factors.
> Allocation of Purchase Price – In an asset sale, the purchase price is allocated to the assets purchased. The difference between the sale price and the allocation of value to the fixed and current assets is goodwill.
> Bridge Loan – A temporary loan to cover the financing shortfall of the acquisition until permanent financing can be obtained.
> Capital Structure – The composition of the total invested capital (long term debt and the current portion of long term debt + equity)
> Mezzanine Financing – Financing subordinated to senior debt. It is similar to a second trust deed, with higher interest rates and sometimes including warrants.
> Rule of Thumb – A mathematical relationship between or among a number of financial variables and a selling price of a business. This rule is based on experience, observation, rumor or hearsay, or a combination of these, for a particular industry or type of business.
> Undercapitalization – a company with small equity and large or higher leverage (e.g. high debt to equity ratio)
> Beta – The measure of the systematic risk of a security. The tendency of a security’s returns to respond to swings in the broad market.
> Capitalization – (a) the conversion of income into value. (b) The capital structure of a business enterprise. (c) The recognition of an expenditure as a capital asset rather than as an expense.
> Control Premium – The added value inherent in a control interest, as contrasted to that with no control, or a minority interest, that reflects its power of control.
> Encumberance – A lien against certain assets or property that encumbers the company’s assets, which could ultimately hold up the closing of the sale of a company or asset.
> Holdback Provision – A provision in a purchase or sale agreement stating that if a buyer has to pay a debt that the seller did not disclose, then it will be paid from an amount that we held back at closing and placed in an escrow account.
> GAAP – Stands for “Generally Accepted Accounting Principles” of the Financial Accounting Standard Board’s methodology of accounting.
> Indemnification – An exemption from the buyer from incurred penalties or liabilities after the closing as a result of incomplete representations and warranties (lying) by the seller.
> Invested Capital – The total of the long term debt plus current portion of the long term debt, plus the equity in an enterprise.
> Earnout – A part of the purchase price that is dependent on a future performance variable or outcome, such as future earnings, future sales, etc.
> Lehman Formula – A business brokerage or financial intermediary standard commission rate, which is a sliding scale. It is based upon a 5-4-3-2-1 percentage of every million over and above the first million of equity sold.
> Leverage – The use of debt to magnify the gain or loss on the equity at risk.
> Lien – A charge or hold on assets, usually be a creditor or banker. It is outstanding until all debt is paid.
> OEM – Original equipment manufacturer. This is typically a company which manufactures products for other companies.
> Price – Earnings Ration (Multiple) – The ratio of a stock’s price to its earnings per share. Also referred to as the P/E multiple.
> Quick Ratio – A measure of liquidity similar to the current ratio except for the exclusion of inventories (cash plus receivables divided by current liabilities)
> REIT – Real estate investment trust, which is similar to a closed-end mutual fund. REITs invest in real estate or loans secured by real estate and issue shares in such investments.
> S Corporation – An unaffiliated corporation owned by 75 or fewer individuals in which the profits go to the individuals without a corporate tax being imposed.
> C Corporation – A type of Corporation in which taxes are paid twice: once at the corporate level and again when the earnings are distributed to shareholders. These corporations can issue various types and classes of stock and have corporate and alien shareholders.
> Limited Liability – The fact that shareholders have no personal liability to the creditors of the corporation in the event of failure.
> Return on Assets – A profitability ratio; earnings before interest and taxes divided by total assets.
> Skim – Money taken by the owner of the business and fradulently not declared to the IRS. Some buyers want to be compensated for skim.
> Risk-Averse – A risk-averse investor will consider risky portfolios only if they provide compensation for risk via a risk premium.
> Risk-Neutral – A risk-neutral investor finds the level of risk irrelevant and considers only the expected return of risk prospects.
> Risk-Lover – A risk-lover is willing to accept lower expected returns on prospects with higher amounts of risk.
> Undercapitalization – A company with small equity and large or higher leverage (e.g., high debt to equity ration)
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