When performed on a going-concern basis, the valuation of a company is, in general, based on the projected earning of the company. In other words, how much could a hypothetical buyer of the company expect to receive as a return on his or her investment. These projections are based on the current and historical financial condition of the company as represented by the financial information provided to the appraiser. They are also based on company management’s estimate of future earnings.
The entire valuation assignment generally takes approximately six (6) weeks after all pertinent company information has been received by the valuation analyst. This information includes five (5) years of historical financial statements (or tax returns), including the most recent interim statements (or quarterly returns). This information also includes company background information, year of incorporation/formation, management experience, information on facilities, customer base, competition, employees, shareholder/ownership breakdown, extraordinary expenses incurred during the year, and management’s projected earnings for the next five years.
Prior to the completion of the assignment and at around three (3) weeks into the project, a Discussion Draft is sent to management to verify that an accurate financial picture has been presented to GROCO and that the projections made are a realistic expectation of future results. After this Discussion Draft is reviewed and accepted by the company management, the final report is issued. This draft phase is for the appraiser’s benefit. Any attempt to use this phase to control or affect the ability of the appraiser to perform an independent review of the business will not be tolerated.