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Dip your toe into valuation theory

June 13, 2018

 

I have previously written that the different values of a business are a result of how one interacts with the company; it may be thought of via an analogy where a different camera lens is used to view a company, and where each lens is a different stakeholder in the business. Depending on the lens used to see the company, the value estimate may change. 

 

More formally, the intersection of the theory underlying my analogy and the law may be accessed through Irston Barnes' review of James C. Bonbright's book, "The Valuation of Property" (McGraw-Hill, 1937), If you think the historical nature of the reference diminishes its relevance, consider this quotation: "The vital importance of the changing nature of property is illustrated in the new occasions for judicial valuations, in the valuation of intangibles, in the valuation of an entire business enterprise rather than the sum of its physical assets..." Prescient, no?  

 

One quote from Bonbright's book that Mr. Barnes seemed to have missed is a favorite of mine.  It is cited by Shannon Pratt in "Valuing a Business; The Analysis and Appraisal of Closely Held Companies" (McGraw-Hill, 2008), and reads: "One of the frequent sources of legal confusion between cost and value is the tendency of courts, in common with other persons, to think of value as something inherent in the thing valued, rather than as an attitude of persons toward that thing in view of its estimated capacity to perform a service...Certainly, for the purpose of a monetary valuation, property has no value unless there is a prospect that it can be exploited by human beings."

 

ABOUT.  Dustan Bonnin CVA MBA Patent Agent is the Founder & Principal of Catapult Intelligence. As a professional services firm, Catapult resolves uncertainty through independent and objective forensic interrogation of intellectual property, financial data and the unique facts and circumstances of a case when generating opinions on value.

 

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