There are many types of business valuation reports available, which all vary in detail from each other. However, there are three basic types of business valuation reports which are characterized by the manner in which they are issued, and the extent of their corroboration, analysis and review. The first type of valuation report is the letter based valuation report, which is issued by a letter of credit or by a bank. This form of valuation uses financial information, market data, industry and company information and historical financial data to provide an assessment of a company’s worth.
Letter based valuation reports use information submitted by the company to the valuation process and are therefore open to the subject interest of the valuation process. This means that the valuator may have strong personal feelings about a particular company. However, this form of valuation reports will usually only include financial statements, rather than other forms of reports. These types of reports tend to have higher levels of subject interest due to the high level of reliance on financial statements.
Secondly, there are valuation reports which are prepared by independent certified public accountants, commonly referred to as CPAs. Valuation reports of this nature differ from the letter certified public accountants in that they are not bound to follow the same market share norms as letter certified public accountants and the results they reach may differ to a significant degree. In addition to this, they are not obligated to disclose any confidential information. Because CPAs are not subject to stockholders or creditors’ obligations, the valuation reports they produce may be more detailed and therefore more reliable and accurate than letters of credit or bank statements.
Thirdly, there are valuation reports, which are prepared by either an independent certified public accountant or by one of many qualified writers who specialise in the subject area. A thorough, well-developed and comprehensive report produced by such writers will contain a range of information, which can be further organised and discussed in a letter or a set of emails, each of which is in the format required by securities regulators. In order to produce such comprehensive reviews, it can sometimes be useful for such writers to compile their information and documentation in an easily digestible format. These reports may then be used by investors, management firms and/or valuation companies for the purpose of obtaining a more detailed valuation report.
Fourthly, there are other forms of business valuation reports which are typically more appropriate for use by third parties. These include: non-verbal communications (such as telephone conferences), and verbal communications (such as meetings and discussions). Both the types of verbal and non-verbal communications could potentially constitute the utilisation of Conflicting Valuation Authority, should such utilisation occur without the full consent of all beneficiaries of that assurance.
Fifthly, the most appropriate sources for valuation reports will be qualified professional financial advisors who are members of a relevant Professional Association. Such professionals have completed a minimum of five years’ experience in the relevant fields and will generally have achieved a Level 2 in their relevant area of expertise. Therefore, such experts would be likely to understand the need for completeness and detail in valuation reports, and would also probably be able to provide the other necessary information and data which may be needed. It should be noted that such an expert would likely not provide valuation reports which were largely based upon market reports, interest rates or other closely related data, and where the comparables used were likely to be limited to residential properties in the same area. The most suitable comparables will usually be those involving comparable homes that were sold in the same area over a similar time period, within a similar price range. These will generally be the most appropriate comparables in order to provide a meaningful comparison of value, particularly when the property concerned is likely to be in the same area in which the valuation reports are being prepared.
Sixthly, the most appropriate sources for valuation reports will be those which provide a detailed and in-depth analysis of the relevant property. It is generally preferable for a valuation to be undertaken on an ongoing basis, whereby a series of periodic or monthly reports are provided based upon the results of the valuation. Where this is not possible, it is usually preferable to undertake a comprehensive review at the end of the relevant year. Such reports will contain a conclusion as to the value of shares, assets or an interest in a business which is based on reliable data and which provides a clear indication of the current real estate market situation.
Seventh, where the valuation reports are provided to a client by an independent appraiser they will generally provide additional inputs by way of recommendations to the client, together with their own independent professional opinion on the report provided. In addition, where a client receives a valuation from an independent appraiser they may also be entitled to the services of a chartered surveyor, which provides additional inputs into the process from an expert surveyor who has been appointed by the valuation company. In such cases, the report provides the clients with the opportunity to review the independent surveyor’s findings and provide additional advice to them on how to improve their situation. Finally, where a client receives a valuation from an independent professional valuation company they are entitled to receive one final document, which is an annexure to the valuation which details the basis on which the valuation is calculated.