In determining the economic value of an entity, a business valuation typically considers three main approaches: 1) an asset-based approach 2) an income approach, and 3) a market approach.
Depending on the profile and condition of the business being valued, one or all three of these approaches can be employed, but in the case of a profitable going concern business, the income and market approaches are most commonly used.
The income approach looks at value based on the future operating cash flows while the market approach uses multiple from either public companies or actual market transactions of similar companies in applicable industries.
#businessvaluation #assetbased #income #market #businessvalue
Driven by an upsurge in the “Magnificent Seven” tech stocks, the S&P gained 16.9% through Q2 while the rest of the market was essentially flat. Q3 had a promising start in July, only to see equity markets falter in August and September as reflected in Q3 results for the three major U.S. market indexes: the S&P 500 -3.65%, the Dow Jones Industrial Average -2.51% and the NASDAQ composite index -4.1%. We see this as a normal pullback from a significant rally, not signs of a potential crash. What happened?
Inflation persists, prompting the Fed to signal higher rates for longer. This dashed hopes for rate reductions, which fueled the run up, and triggered a sell-off. With fiscal policy driving inflation, and the Fed combating it with record setting (pace and amount) rate hikes apparently to no avail, we have seen a flight to quality—from stocks to treasuries. Yes, inflation is down from 9% to 3.9%, but these are year-over-year growth rates. Prices are compounding at that rate, well above the Fed’s 2% target.
Two key drivers of inflation—energy and wages—are significant headwinds for the Fed’s efforts. Oil prices are up more than 28% to over $90 a barrel due to short supply. This sharp rise reversed the decline in U.S. headline consumer and manufacturing inflation. A 22% increase in third quarter diesel prices will further impact the economy through increased transportation costs.
From the Fed’s perspective, the unemployment rate is stubbornly low. The last report showed that weekly jobless claims fell to the lowest rate since last January. Increased unemployment is a primary indicator to the Fed that its rate hikes are working. The UAW strike offers further perspective on the current labor market. The strike will also negatively impact Q4 GDP growth. Wage pressures are an issue for the Fed, corporate profits, and economic growth generally.
Bank liquidity is a risk measurement involving the ability to meet near-term financial commitments, such as to pay bills, at a reasonable cost. More specifically, this closely managed metric measures of a bank's ability to quickly convert its assets into cash in order to satisfy withdrawals from depositors and other fund providers.
Liquidity is central to a bank's stability and solvency and is measured by ratios such as liquidity coverage ratio and the net stable funding ratio.
Primary sources of bank liquidity include assets, such as their cash reserves and securities portfolio, their operating cash flow as well as deposit and other wholesale funding liabilities. Facilities at the Federal Reserve and other short-term borrowings provide additional liquidity resources.
Managing bank liquidity is highly nuanced and overseen by regulatory bodies. The management of bank liquidity depends on a number of factors -- business mix, balance sheet composition and prevailing economic conditions being chief among them.
#liquidity #banking #stability #solvency #cashreserves
A retirement plan is generally available for every business type. Traditional qualified plans receive the lion’s share of attention, but certain alternatives may be appropriate for small businesses and the self-employed. Article 4 of BaldwinClarke’s business retirement plan series discusses simplified options.
Business retirement plans are intricate beasts. This series has covered plan innovations, selection considerations, and regulatory requirements. Such topics might intrigue a room of financial professionals, but BaldwinClarke understands that entrepreneurs are most concerned about the bottom line. This piece spotlights an important plan category: simplified retirement plans.
Previous articles covered the advantages and pitfalls of traditional qualified plans. Some offer significant flexibility (401(k)s, profit sharing plans), and others allow substantial contributions (pension plans).[1] While these features can be attractive, compliance requirements are a major deterrent. Fortunately, simplified alternatives are available.
Simplified retirement plans are readymade plan templates for small business owners and the self-employed. Popular examples include Safe Harbor 401(k)s, Solo 401(k)s, SEP IRAs, and SIMPLE plans. The plan designs differ, but all provide one key advantage. Simplified retirement plans eliminate many compliance obligations associated with traditional qualified plans.
