Appellate court Knocks Out damages method for soybean farm
A CPA who specializes in damages used three ways to calculate damages to a Louisiana soybean farm caused by someone who was supposed to be checking for insects. The trial court accepted one of his methodologies, which measured damages based on yields from a neighboring farm.
Growing pains: On appeal, the defendants argued that the methodology was not appropriate because the Aultman case set the proper legal standard. That case says that, in general, the amount of damages for the loss of a growing crop is the average yield and market value of crops of the same kind, planted and cared for in the same manner and in the same area, less certain costs. The plaintiff countered by pointing out that the expert used what he felt was a relevant comparable and a methodology presented in Robert L. Dunn’s book, Recovery of Damages for Lost Profits.
The appellate court sided with the plaintiff, ruling that using a comparable is not consistent with precedent, i.e., the standard used in the Aultman case. The appellate court used an alternative methodology the expert had presented, which used the subject farm’s best yield over the past five years, which resulted in a lower amount of damages.
The case is Dettenhaim Farms, Inc. v. Greenpoint Ag, LLC, 54,162 (La.App. 2 Cir.) (Nov. 17, 2021). The full court opinion and case digest can be found on the BVLaw platform.
Damodaran posts second data update, explains implied ERP
An extensive amount of free data on risk-free rates, equity risk premiums (ERPs), corporate default spreads, corporate tax rates, country risk premiums, and more can be found on the website of Professor Aswath Damodaran (New York University Stern School of Business), who generously posts updates each year. He does a series of posts on his blog based on these new data, and his second post examines the equity market and explains his “implied” ERP. This is a forward-looking method as opposed to the “historical” ERP. “The danger of poring over this historical data is that a focus on the past can blind us to structural changes in markets that can make the future very different from the past,” he writes. “To get a measure of what equity markets are offering in terms of expected returns, we are better served with a forward-looking and dynamic measure of these returns.” He calculates the implied ERP by backing it out from the current market prices and expected future cash flows, which gives an internal rate of return for equities that is analogous to the yield to maturity on a bond. He calculates that to be 4.24% at the end of 2021. To that he adds the risk-free rate (1.51%, the 10-year T-bond rate on Jan. 1, 2022) to get the long-term annual expected return on stocks of 5.75%.
Damodaran updates his data once a year, so you need to be careful about using the data later in the year, particularly if there is a major shift or disruption in the market or the industry of your subject company.
Feedback wanted on company-level beta module for the Navigator
Kroll (formerly Duff & Phelps) is developing a new module for its Cost of Capital Navigator that will enable users to derive company-level betas based on their own selection of comparable companies. During a recent BVR webinar, Carla Nunes and Jim Harrington (both with Kroll) mentioned that they are conducting a survey to help determine what features should be included in the new module. Please take the survey at surveymonkey.com/r/Q3YRD8Q. Thank you!
Use the ‘stay interview’ to keep good BV people, advises Borrowman
Many business valuation firms are facing a crisis in terms of staffing. In his latest newsletter, John Borrowman (Borrowman Baker LLC), a recruiter who has worked exclusively in the BV profession for over 20 years, advises managers to use the “stay interview” to retain good employees. Use a “casual and conversational manner” to find out how employees are doing and whether there’s anything you can do as manager to better support them in their jobs. Borrowman offers a list of questions, such as “If you could change something about your job, what would that be?” and “What would you like to learn here?” But the important thing to do is to act on the responses you get. Otherwise, it may “put you on the road to the exit interview that you wanted to avoid in the first place,” he says. To read more of his observations, click here.
Extra: You can read about the “perfect storm” in staffing at business valuation, forensic, and litigation services (BVFLS) firms in an article in the January 2022 issue of Business Valuation Update.
Apple is still the most valuable brand, per Brand Finance study
Apple has retained the No. 1 spot on the list of the world’s most valuable brands, according to the “Brand Finance Global 500 Report 2022.” The pandemic has boosted its value as people relied more on technology during the crisis. Plus, Apple has been investing in products and services that go beyond small devices. Amazon and Google are second and third in brand value, respectively. Technology remains the most valuable industry, while retail overtook banking for second place. On the rebound from COVID-19 are airlines (brand values are up after two years of double-digit declines) and hotels. The fastest growing brand is TikTok, and the world’s “strongest” brand is WeChat (for the second year in a row), says the study.
Sponsorships available for the AAML/BVR National Divorce Conference
Want to reach out to divorce attorneys? They will be in Las Vegas and online at the 2022 AAML/BVR National Divorce Conference, brought to you by the American Academy of Matrimonial Lawyers (AAML) and Business Valuation Resources (BVR). It will be held September 18-20, and sponsorships are now available. Attendees have the choice of attending either on-site at the Venetian in Las Vegas or online. What makes this conference unique is that teams of valuation experts and matrimonial attorneys present the sessions, so you get two key perspectives on the most pressing issues. The full agenda will be available soon. To see different ways to stand out to attorneys, click here.
Reminder: Pepperdine’s private cost of capital survey is now open
Forty percent of valuation experts use the annual “Pepperdine Private Capital Markets Report” for estimating small private-company cost of capital, according to a BVWire poll. To produce the report, Pepperdine conducts an annual survey of expected rates of return of investors and lenders with respect to private companies. This year’s survey is now open, and input is sought from anyone involved in the funding of private businesses, including funding providers, recipients, investors, intermediaries, and advisors. The information you provide is confidential. The direct link to the survey is here.
Global BV News
OECD issues updated transfer pricing guidelinesA new chapter on financial transactions is in the 2022 edition of the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations, which are widely followed. The new edition reflects the post-2017 revision by the Organisation for Economic Co-operation and Development (OECD) of its profit-split guidance as well as guidance for tax administrations regarding hard-to-value intangibles. The OECD is headquartered in France