Stock Valuations

Establishing the accurate "fair value" of a company can be a complex and formidable challenge.  For over four decades, Austin Financial Services has utilized proven valuation methodologies to determine the appropriate value for public and private stock, involving:

t Mergers and Acquisitions

t Sale Price Determination

t ESOP Valuations

t Dissenters Appraisals

t Fairness Opinions

t Financial Performance Guidelines

t Estate Planning

t Stock Redemption

t Stock Offerings

t Stock Option Plans

Valuation of a public or private company's stock involves a combination of several methodologies which, coordinated together, present a "fair value" of the company's stock value.  The valuation approaches utilized by AFSI are discussed as follows.

Discounted Cash Flow Technique:  The discounted cash flow technique is based on the principle that the worth of a business is equal to the present value of net cash flows.  It is therefore necessary to project the balance sheet and income statement of the institution being valued.

Adjusted Book Value Technique:  Since future cash flows of a company are not known with certainty, the adjusted book value technique provides an alternative approach to valuing the company.  This technique involves a determination of the "fair value" as a going concern of all assets and liabilities of the company.

Market Comparable:  Two comparable value approaches can be considered: (1)price to earnings ("P/E") multiple; and (2) price to book multiple.

The price to earnings multiple (P/E) incorporates an analysis of the economic environment, the industry and the subject company in comparison to other similar publicly traded companies within the industry.  The fair value is then determined by the product of the P/E multilplied by the subject's most recent 12 month earnings.  This approach is most applicable to closely held public companies where the liquidity of the shares of stock is deficient.

The second market comparable method is the price to book (P/B).  The price to book approach is similar in that the average market P/B value ratio (instead of price to earnings) of the comparable companies is multiplied by the book value of the entity under analysis.  Book value represents an accounting and tax concept only, therfore, it may or may not have any relation to the fair market value of a company.  However, P/B is useful for valuing: (1) asset-rich companies; (2) non-going concern situations; and (3) mature or cyclical companies with essentially zero or negative earnings.

Other valuation techniques may also be appropriate in determination of the fair value of the entity.  AFSI's extensive experience in conducting business appraisals ensues that the appropriate technique(s) are employed in each valuation project.

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