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talized cost less accumulated amortization or depreciation as it appears on the books of account
of the business enterprise. (Practitioner — Appendix B)

Net cash flows. When the term is used, it should be supplemented by a qualifier. See equity net
cash flows and invested capital net cash flows. (Practitioner — Appendix B)

Net present value. The value, as of a specified date, of future cash inflows less all cash outflows
(including the cost of investment) calculated using an appropriate discount rate. (Practitioner —
Appendix B)

Net tangible asset value. The value of the business enterprise’s tangible assets (excluding excess
assets and nonoperating assets) minus the value of its liabilities. (Practitioner — Appendix B)

Noncompete agreements. Dollar value placed on an agreement with selling party not to compete
with the purchaser, usually for a certain period of time and usually in a specific geographic area.
fn 12 (BLD)

Nonoperating assets. Assets not necessary to ongoing operations of the business enterprise. (NOTE:
in Canada, the term used is "redundant assets.") (Practitioner — Appendix B)

Normalization. See normalized earnings. (Practitioner — Appendix C)

Normalized earnings. Economic benefits adjusted for nonrecurring, noneconomic, or other unusual
items to eliminate anomalies and/or facilitate comparisons. (Practitioner — Appendix B)

Normalized financial statements. Financial statements adjusted for nonoperating assets and liabili-
ties and/or for nonrecurring, noneconomic, or other unusual items to eliminate anomalies and/or
facilitate comparisons. (Practitioner — Appendix B)

Option pricing models. Models used to price stock options incorporating variables including the
exercise price, the time to the expiration date, the risk-free interest rate during the period, the un-
derlying value of the stock and the stock price volatility. Option pricing models include the
Black-Scholes Option Model, the Black-Scholes-Merton European Model, the Pseudo-American
Call Option Model, the Binomial Model for American Call options and others. fn 13

Orderly liquidation value. Liquidation value at which the asset or assets are sold over a reasonable
period of time to maximize proceeds received. (Practitioner — Appendix B)

Portfolio discount. An amount or percentage deducted from the value of a business enterprise to re-
flect the fact that it owns dissimilar operations or assets that do not fit well together. (Practition-
er — Appendix B)

Preadjustment value. The value arrived at prior to the application, if appropriate, of valuation dis-
counts or premiums. (Practitioner — Appendix C)

fn 12 Trugman, Gary R. Understanding Business Valuations, A Practical Guide to Valuing Small to Medium Sized Businesses, 3rd ed.,
New York: AICPA, 2008.

fn 13 See footnote 4.

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