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Chapter 10

Valuation Synthesis and Conclusions

Reviewing the Level, Standard, and Premise of Value

The results of the valuation methods applied must be synthesized into a conclusion of value. Regardless
of whether this conclusion consists of a single value, a range of values, or a greater than or less than
proposition, several synthesis considerations must be assessed. These considerations include but are not
limited to

a. determining consistency between comparable companies and the subject company for the vari-
ous valuation indications to the same level of value, standard of value, and premise of value;

b. weighing each indication of value relative to its merits in this particular application;

c. evaluating the financial statements of comparable companies and the subject company for unu-
sual or extraordinary events that skew normal operating results; and

d. determining whether it is appropriate to use multiple methods to arrive at a conclusion of value
and, if so, how to establish a defensible approach that can withstand third-party and judicial scru-
tiny.

Obviously there are a plethora of factors to consider when distilling information from internal and exter-
nal sources to arrive at an estimated conclusion of value for an entity in bankruptcy. Therefore, although
the preceding list (a–d) is by no means exhaustive, it is a good place to start. Because items (a), (b), and
(c) have been addressed earlier in the practice aid, no additional discussion is needed. Weighting each
indication of value when multiple methods are incorporated is evaluated in the next section, as well as
common considerations (organized by approach) for practitioners when determining the quantitative and
qualitative nature of the information they are using in estimating a conclusion of value.

Weighting Each Indication of Value

A practitioner may elect to incorporate multiple approaches to reach a final conclusion of value. This is
most commonly done by weighting the different approaches to arrive at one consolidated value (that is,
taking the results of each approach and multiplying by a percentage predetermined by the practitioner to
represent a judgmental allocation of influence on overall conclusion of value). The risk of this approach
is that, due to the multiple levels of calculations, the courts may interpret this to mean there is more pre-
cision to the methodology and results than what might actually exist. The implications of this could be a
heightened level of scrutiny by the courts and counsel representing creditors. Although the choice to use
this approach is at the practitioner’s discretion, at minimum the practitioner should consider the appro-
priateness of each method as well as quality and quantity of evidence used in developing methodology
and results.

In assessing the relative merit of each approach, the quantity and quality of support for each approach is
central to providing a defensible valuation opinion. Approaches that require fewer and smaller adjust-
ments are generally preferred to approaches that require significant adjustments to arrive at an appropri-
ate value. Approaches that require significant adjustments add a level of uncertainty, and as such, the

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