Value and Price in acquiring a Business

shakiing_handsBy Dr. John Psarouthakis, Executive Editor of www.BusinessThinker.com,  Founder and former CEO, JP Industries, Inc., a Fortune 500 industrial corporation

This is the 11th of a Series of 15 short articles on “HOW TO BUY THE RIGHT COMPANY” They will be posted at one a week

In acquiring a company you must determine the value to you and the price you want to pay for the company / business you are considering.

Although four basic approaches, the profitability and multiple (price/earnings ratio)method, the asset method, historic cash flow and discounted cash flow, are all used, the discounted cash flow method is considered the most realistic valuation of the candidate company. However, a comparison of values from different methods can provide useful insights, especially in the early stages of valuation of the business.

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The Floundering Federal Reserve

Meltzer 3Dr. Allan H. Meltzer is an American Economist and the Allan H. Meltzer professor of Political Economy at Carnegie Mellon University’s Tepper School of Business. He is the author of a large number of academic papers and books on monetary policy and the Federal Reserve Bank. Dr. Meltzer’s two volume books, “A History of the Federal Reserve”, are considered the most comprehensive history of the central bank.   He is considered one of the world’s foremost experts on the development and application of monetary policy. Currently he is also President of the Mont Pelerin Society. Dr. Meltzer originated the aphorism “Capitalism without failure is like religion without sin. It doesn’t work.”

This is a monthly column written by Professor Meltzer for Defining Ideas of the Hoover Institution.

It is posted in   http://www.hoover.org/research/

In late August, I again spent 3 days with central bankers from all over the world at the annual meeting sponsored by the Kansas City Federal Reserve Bank. The spectacular, scenic beauty at the Grand Teton National Park, Wyoming, is one of the world’s most beautiful places. The meetings attractions include stimulating discussions of economic policy in addition to the spectacular scenery and wonderful hiking.

This year’s central topic called on participants to discuss ways to improve future monetary policy operations. A major concern is about ability to respond effectively to a recession if the current low interest environment continues. Central bankers have learned to lower interest rates to encourage borrowing in recessions and to raise rates when inflation threatens or occurs. Because interest rates are close to zero in all the developed countries, some market participants fear that central banks will be powerless to act. Chair Yellen tried to reassure them.

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Preliminary due Diligence: Acquisitions

shakiing_handsBy Dr. John Psarouthakis, Executive Editor of www.BusinessThinker.com,  Founder and former CEO, JP Industries, Inc., a Fortune 500 industrial corporation

This is the 10th of a Series of 15 short articles on “HOW TO BUY THE RIGHT COMPANY” They will be posted at one a week

This short article reviews the important step of preliminary due diligence that takes place once a confidentiality agreement is signed and you are satisfied that a lead meets your major criteria. The preliminary due diligence has three important aspects, a meeting with the seller, one or two company visits and a preliminary review of documentation. There are four key goals in the preliminary due diligence phase. They are:

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