I recently took a entry level position into a large trust company working as a small business evaluation analyst. I have passed level 1 and waiting for results for level II in August. The company stresses acheiving the CFA designation as a broad range in evaluation but is really looking for its employees to acheive their ASA designation. It stands for Accredited Member (AM) or Accredited Senior Appraiser (ASA). Has any one heard of this before and do you have any opinions on it?? Website is –http://www.appraisers.org/join/designations.htm
Yes, I am a CPA doing valuations, and now halfway through the ASA certification. It consists of four courses covering the accounting world of valuation approaches-- asset, income, and market approaches. It’s probably worthwhile if you will be doing privately-held valuations as the ASA goes into more depth about cost-of-capital assumptions. They use the book “Valuing Small Businesses” by Shannon Pratt. It’s a good course, but some of the stuff I think is a bit arcane, e.g., they suggest using the 20-year bond for RFR, so you have to “unlearn” some of the CFA stuff.
ASA is the premier private business valuation designation. the courts will probably respect an ASA’s opinion over a CFA’s opinion for a private business litigation case. you can probably learn a few tricks from their BV courses, but if you’ve done FSA for CFA 1 and 2, it may be 80% review, 20% finishing school. they do get into much more details on the mechanics of DCF whereas CFA assumes you’re smart enough to figure it out on your own. e.g. matching the numerator and denominator basis for multiples, how to identify good comparables, how to treat specific line items, etc.
I work in the business valuation arm of an accounting firm. All my superiors have the CPA/ABV and ASA designations. I have taken a couple of the ASA courses and IMHO, their difficulty is nothing compared to that of the CFA exams (I have taken levels I and II). From what I have gathered, the CFA designation is quickly gaining respect and desirability in the BV world, but I would agree with rohufish in that ASA is still the most widely recognized BV credential, especially by the courts. However, based on my anecdotal experience, it seems that the transaction services/BV areas of the Big 4 hold the CFA designation in higher regard than the ASA designation. I think one reason the ASA designation is so popular in the BV world is that is gives CPA’s a way to earn a designation that will give them credibility in the industry without having to make the time/effort commitment required in the CFA program. I don’t mean to talk down the ASA designation. It is a great thing for BV professionals and the courses do present some worthwhile material. For the time commitment that it requires, I think it is definitely worth getting it.
Thanks for the information. Its required to take this courses and I hope it will help with my career. Appreciate the help fellas
calvol Wrote: ------------------------------------------------------- >>It’s a good course, but some of > the stuff I think is a bit arcane, e.g., they > suggest using the 20-year bond for RFR, so you > have to “unlearn” some of the CFA stuff. What’s wrong with the 20-year bond as the RFR?
exactly my thought too. your DCF assumes terminal value based on CFs until perpetuity. for going concerns. anyway this is a big debate even among academics
One take… Assuming the default risk is zero. Were looking at RFR as a proxy for inflation and time premiums, but really everyone is paying attention to inflation. Forecasting inflation 20 years from now is a useless exercise, therefore IMO 20 year yields are not the most efficient RFR. Assuming your using RFR as a proxy for expected inflation and time premiums, I would say the 5 year to 10 year would be a much more reasonable, reliable, and defendable measure. Ideally, one should want to use a different discount rate for each year, based on the outlook for inflation in that year. However, I suspect only the most prudent analyst would dismiss such an exercise as impractical. Even if this were the case, as with all forecast, as you look further out you the forecast becomes less meaningful.
4 edits. wow, you worked hard on this one gouman. nice job.
rohufish Wrote: ------------------------------------------------------- > 4 edits. wow, you worked hard on this one gouman. > nice job. I can’t spell.
Interesting take. But a reason for using the 20-year is that Ibbotson/Morningstar risk premiums are commonly used among valuation people. Those premiums are based on premiums over the 20-year, right or not.
The key reason in BV theory for using the 20-year RFR and 20-year equity risk premium is that private firm owners and investors have long investment horizons. Up until a few years ago, BV analysts used 30-year RFR and ERP but that changed to 20 years after Treasury stopped selling 30-year bonds. Another reason for using a 20-year ERP rather than short-term ERP is it is a more stable measure. Most BV practitioners use the ERP premium data published by Ibbotson (now Morningstar). The Morningstar data are **ex post** measurements rather than forward-looking estimates. (People use those measures assuming the past ERP represents the forward-looking ERP.) Ex post ERP measurements over *short* horizons don’t make a lot of sense in estimating a forward-looking ERP. Those short-term ERPs are too volatile that no one can explain why.
I agree with you, Gouman, a ton. For the most part, however, I think DCF is an utterly useless tool all together, as measuring any cash flow 20 years out, whether it’s risk or inflation or other, is, frankly, almost impossible. I, too, was working in a commercial real estate valuation group at a top 50 accounting firm. Except in the rarest of cases, these expert valuation professionals with their CPA/ABV/ASA/CFA, etc. refused to use DCF except as a tertiary or even fourth or fifth measure of valuation to have another layer of argument. They argued that, while any 6th grader with a calculator could conduct a DCF calculation, determining the discount factor was beyond their ability. And this is for a relatively homogenous asset (apartments) in comparison to a business. (This is partly why I reject fundamental analysis with stocks. I’d like to see some punk 22-year-old analyst tell me a good discount rate for a HIGHLY complex company–GM, for example–over the next 20 years, let alone estimate its cash flows.)