Financial Fundamentals: Business Valuations

Photograph: Professor Shane Vandalsem presenting at Washburn Law.Professor Shane Vandalsem was hosted by the Business and Transactional Law Center on September 19, 2018. He was the second speaker of the Center's Fall 2018 Financial Fundamentals Series. Vandalsem, an assistant professor of finance in Washburn University's School of Business, explained some of the fundamentals of valuing businesses and how they interact with the practice of law.

Vandalsem explained the difference between entity valuation and asset valuation based partially on the expected life of a company. He elaborated on the components of the two valuations and explained how firms generate value in excess of the value of their assets. He also explained the process of getting "from entity to equity" by subtracting the value of prior claims of debtholders, employees, the IRS, and suppliers.

Vandalsem discussed the three different valuation approaches: (1) discounted cash flow, (2) comparables, and (3) multiples. In explaining the comparables valuation approach, he noted the difficulty of defining "market value" and finding ways to make reliable comparisons between companies.

Vandalsem also pointed out the challenges of private business valuations due to a lack of information, lack of liquidity, the possibility of new relationships between owners and their clients, and the pervasiveness of personal guarantees.

Washburn Law thanks Professor Vandalsem for taking time from his teaching and scholarship to help the Business and Transactional Law Center provide the Fall 2018 Financial Fundamentals Series.

Photograph: Students at Washburn Law listening to a business valuations presentation by Professor Shane Vandalsem.