A Calculation, Summary or Detailed Appraisal Report – What is the Difference?
As a practicing appraiser, a question that I am regularly asked is “what is the difference in scope between a Calculated Value, a Summary Report and a Detailed Report when determining what a business is worth? Which one is appropriate for my situation?”
The three types of reports mentioned above are all considered acceptable according to the National Association of Certified Valuators and Analysts (NACVA) as long as the certified valuator follows the established reporting standards for each. The difference between these reports is the level of discovery and data that is included, as well as the methods and approaches used to reach the Conclusion of Value or the Calculated Value.
A Conclusion of Value can be presented in either a Detailed or Summary Report. Both the Detailed and Summary reports have the same reporting standards, however the difference is in the depth of company background and history that is included in the report. The Summary Report is basically an abridged version of a Detailed Report.
A Calculated Value is presented in a Calculation Report. A Calculation Report has different reporting standards and, per NACVA, must include the following statement:
“This Calculation Engagement did not include all the procedures required for a Conclusion of Value. Had a Conclusion of Value been determined, the results may have been different.”
This statement is an important caveat, as the content of a Calculation Report is far more limited and typically not the best option if your Report is to be used for a legal issue, as the methods utilized to arrive at the Calculated Value are not as in-depth, nor defined, as they are for a Detailed or Summary Report and may be more difficult to defend.
The most common report form is the Summary Report. The reason for this is it covers all of the investigation and analysis required in a Detailed Report, yet time and energy is saved by writing a summary of the findings instead of extensive detail for each part of the valuation process, therefore making it a more cost effective option for the client. A Conclusion of Value is more defendable in a court of law, as it includes a more thorough and detailed analysis than a Calculated Value.
When an appraiser performs a Detailed or Summary Report, among other things, the appraiser must consider three approaches to value and the appropriate methods to employ under each approach to reach a Conclusion of Value. Below I have included some, but not all, generally accepted methods that are commonly used in business valuation:
- Book Value Method
- Adjusted Book Value Method – Going Concern
- Adjusted Book Value Method – Liquidation
- Capitalization of Earnings Method
- Discounted Cash Flow Method
- Capitalization of Excess Earnings Method
- Market Data Method – BizComps
- Market Data Method – IBA
- Market Data Method – Pratts Stats
The appraiser uses their experience to choose the best method under each approach and uses accepted best practices to correctly execute each method. This is dependent on the purpose of the appraisal and the particular industry involved.
Regardless of whether you engage someone to provide you with a Calculation, Summary or Detailed Report they should be certified through a nationally recognized association.
If you have any additional questions about what type of valuation is best for your situation feel free to call Matthew B. Cassedy, MBA, CBA, CVA, CMEA of Analytic Business Appraisers, LLC at 480.857.7449.
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