Business Valuation

Business Valuation

Business valuation forms the core of our investment process when managing client portfolios. It’s not a coincidence that many of our clients are current and former business owners; they are familiar and comfortable with the business valuation process we employ.

To determine the intrinsic worth of an investment, we begin with careful analysis of the company’s income statement and balance sheet to identify value based on net assets and cash flow.

The appeal of our valuation methodology is that it is company specific as opposed to being based on uncontrollable variables such as economic trends, interest rate forecasts or the direction of the overall stock market.

Furthermore, our think-like-a-business-owner approach affords a common sense perspective and hence, an objective way to evaluate each investment independently from the market.

Our discipline relies heavily on a realistic understanding of the discretionary cash flow from a business.

This process focuses on scrutinizing the financial statements of potential investments and really getting to know a company’s operations in the same way that a business owner would if he or she was running a sole proprietorship.

The key is cash flow. After all, when one owns a business, it’s the operating cash flow or free cash flow that the business owner gets to keep.

By understanding intimately the operations and profit power embedded within a company, the ability to attach a fair – and independent – price becomes truly feasible.

The business owner mindset forms the basis for our buy and sell discipline used in our wealth management and investment management process.

Why is this approach so unique?

Too many investors will buy a stock because they think the product is revolutionary or they like the company, which has no relevance on whether the stock is reasonably priced. If you overpay for a stock right off the bat, you potentially expose yourself to more downside risk than upside return.

Applying a thorough cash flow analysis keeps us focused on what really matters: return on investment.

Just being a good business isn’t enough.When you sink investment capital into a business you want to see a reasonable return for the risk you are assuming.

The business valuation approach helps us determine when an investment is a good deal or undervalued.

How does this relate to the current stock market?

The ability to value businesses provides us with a healthy degree of independence from the market.

We recognize that the market is efficient over the long-term, but in the short-term certain factors can have a profound effect on a stock’s price.

The market’s reaction to short-term events can produce large swings in the stock price that are unrelated to the long-term prospects of a company.

We make an effort to capitalize on these short-term events, which depress the prices of great companies and offer above average returns to patient, astute investors.

In applying this investment discipline, we develop customized solutions that meet capital preservation, income, and long-term appreciation requirements for our clients’ assets. In addition, we focus on maximizing net after-tax total return for taxable accounts under management.

Schedule Meeting and learn why we are a sensible choice to providing intelligent investing.