IRC 409A Common Stock Valuation
This free, guided checker walks your team through the key decision points for IRC 409A Common Stock Valuation. Answer a few questions to see the likely approach and the evidence to document.
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Premise of Value: Going Concern vs Liquidation
This free, guided checker walks your team through the key decision points for Premise of Value: Going Concern vs Liquidation. Answer a few questions to see the likely approach and the evidence to document.
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This tool is a high-level valuation screening aid for general information only and is not a valuation, appraisal, accounting, tax or legal opinion. A defensible conclusion of value requires a qualified valuation specialist applying professional standards to entity-specific evidence.
The questions this tool walks you through
Here is what the checker asks and why each step matters. Prefer to talk it through? Contact us and we will help directly.
Is the standard of value for the engagement selected and documented?
The premise of value is not chosen for convenience; it follows from the standard of value and the specific facts. Confirm which standard governs before testing going concern versus liquidation, because the same interest can carry different values under different premises.
Select and document the standard of value before fixing a premise, because the premise follows from the standard under IVS 104 (Bases of Value).
Official guidance: International Valuation Standards
Is the effective valuation date fixed, and are the facts known or knowable at that date identified?
The premise is judged on the facts as they existed at the effective date, not with hindsight. A business that later failed may still have been a going concern on the valuation date, so the date and the then-known facts must be pinned down before the operating condition is assessed.
Fix the effective valuation date and the facts known or knowable at that date before selecting a premise under IVS 104 (Bases of Value).
Official guidance: International Valuation Standards
What is being valued, and in what reporting context?
The subject and the reporting context steer the premise analysis: an operating enterprise is tested for going-concern viability, a financial-reporting asset is measured at its highest and best use under ASC 820, and a business already winding down is measured on a liquidation basis.
Test whether the operating business is a viable going concern. Determine highest and best use for the nonfinancial asset under ASC 820-10-35-10A. Apply a liquidation premise and determine whether it is orderly or forced.
Official guidance: International Valuation Standards
As of the valuation date, is the business a viable going concern - able to continue operating for the foreseeable future with adequate liquidity and financing and no imminent compulsion to liquidate?
Going-concern viability is a factual test as of the valuation date: recurring cash flow, access to financing, and no binding decision to cease operations. If the business remains able to operate, the next step compares its going-concern value against its net liquidation proceeds; if it cannot continue because of insolvency or an imminent forced wind-down, move directly to determining whether the liquidation would be orderly or forced.
Move to the liquidation premise analysis.
Official guidance: International Valuation Standards
Highest and best use test: is the value of the assembled, operating business greater than the net proceeds that would be realized by liquidating its assets separately?
Highest and best use is the use that is physically possible, legally permissible, financially feasible, and value-maximizing. A viable business is not automatically a going concern for valuation if its assets would fetch more disposed of separately, so compare enterprise value against net liquidation proceeds before concluding.
Conclude a going-concern premise and select income and market approaches under IVS 105 (Valuation Approaches and Methods). Apply a liquidation premise and determine whether it is orderly or forced.
Official guidance: International Valuation Standards
Under what conditions would the assets be disposed of?
Orderly and forced liquidation differ by the time available to sell: an orderly basis assumes a reasonable marketing period, while a forced basis assumes a compelled, hurried sale that usually yields less. Both measure net proceeds after costs to sell and wind-down obligations, so identify the timeline before selecting between them.
Conclude an orderly liquidation premise and measure net realizable proceeds under an asset-based approach. Conclude a forced liquidation premise and measure compelled-sale realizations net of costs. Develop the disposal timeline, market, and costs before fixing the orderly-versus-forced premise under IVS 104 (Bases of Value).
Official guidance: International Valuation Standards
For the nonfinancial asset, what use maximizes its value to market participants?
Fair value of a nonfinancial asset is measured at its highest and best use from a market participant's perspective, and the current use is presumed to be highest and best use unless the market indicates otherwise. That use sets the valuation premise: in-use when value is maximized with other assets, in-exchange when it is maximized standalone.
Measure fair value on the in-use premise, valuing the asset with its complementary assets as a group under ASC 820-10-35-10E. Measure fair value on the in-exchange (standalone) premise under ASC 820-10-35-10E. Reflect the value-maximizing alternative use in highest and best use under ASC 820-10-35-10A.
Official guidance: International Valuation Standards
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