great comments!
CPA would give you the accounting knowledge req’d for all the PPA and impairment testing crap CFA pretty inapplicable IMO
bhill020 Wrote: ------------------------------------------------------- > CPA would give you the accounting knowledge req’d > for all the PPA and impairment testing crap > > CFA pretty inapplicable IMO The accounting knowledge required is pretty basic and not really an issue. The majority of CFA material is inapplicable, but is very well regarded. If you are doing debt instruments or exotic derivatives, CFA skills are a must.
Bread and butter for a lot of shops is goodwill impairment testing, purchase price allocations, solvency opinions and fairness opinions. The acctg on these jobs is generally light. You don’t need a cpa to perform discounted cash flow valuation and or market multiple valuation. Valuation is more of a finance than acctg job.
buyicide Wrote: ------------------------------------------------------- > Bread and butter for a lot of shops is goodwill > impairment testing, purchase price allocations, > solvency opinions and fairness opinions. The > acctg on these jobs is generally light. You don’t > need a cpa to perform discounted cash flow > valuation and or market multiple valuation. > Valuation is more of a finance than acctg job. +1
depends whether you’re valuing pubcos and complex pubco instruments OR private companies. CFA fairly inapplicable to private co valuation. some aspects (not all) of valuation are monkey work IMO. don’t really need either.
Have you ever worked in valuation?
bhill020 Wrote: ------------------------------------------------------- CFA > fairly inapplicable to private co valuation. > totally false. there is a good portion of material in CFAI textbooks dedicated to the valuation of illiquid investments. relative company valuation and selection of multiples from guideline public companies, levering/unlevering betas from a pool of guideline companies, illiquidity discounts, valuation of early stage companies.
bhill020 Wrote: ------------------------------------------------------- > depends whether you’re valuing pubcos and complex > pubco instruments OR private companies. CFA > fairly inapplicable to private co valuation. > > some aspects (not all) of valuation are monkey > work IMO. don’t really need either. Not all private companies are mom & pop candy stores on the corner. Private company work is often far more complex than anything you would encounter with a public company. Work for public companies is often much larger is scope, but usually relatively straight-forward from a technical perspective.
higgmond Wrote: ------------------------------------------------------- > Not all private companies are mom & pop candy > stores on the corner. Private company work is > often far more complex than anything you would > encounter with a public company. Work for public > companies is often much larger is scope, but > usually relatively straight-forward from a > technical perspective. +1 how to value a public company for financial reporting purposes - check the stock price, multiply by number of outstaning shares, done 
^I agree with higgmond and Mobius Striptease. Private company valuation work is often complex because you are not dealing with a set of financial statements that has been audited for SEC purposes. Many times, the adjustments are far more complex than the traditional public company adjustments. In addition, many private companies are niche companies where it is difficult to come up with suitable guideline public companies so valuation is tricky and requires a high degree of critical thinking skills.
I think the 2010 CFA material has an entire reading dedicated to private company valuation.
Alright guys, I can agree that some level of critical thinking is required in valuations because it can be so subjective. Subjectivity requires use of judgement and supported reasoning. It’s not always a “high degree” of critical thinking but certainly some is required. Calculating the WACC (including company specific risk premium) and selecting comps for a niche private company can be highly subjective. In the absence of open market transaction data, it can be even more subjective. Subjectivity by its very nature requires questioning assumptions to arrive at well reasoned and supported conclusions. In response to a question, no I do not work in valuations. I have worked in a Big Four for 6 years, primarily in Corporate Finance. So do have significant exposure to valuations. CF valuation work is quick and dirty compared to the granular level of detail that formal valuation reports go into (though we are often very close in our ranges of value - which calls into question the time spend getting into the granular detail). I do see our Val group’s reports (for business valuations) so I do know what goes into them and have completed a few myself. I have not had exposure to goodwill impairment testing, PPAs, etc. - and I wouldn’t want to! IMO and correct me if I’m wrong, the more complex areas of valuation these days (in terms of technical material) are learning the new accounting / financial instrument standards (or in some countries, conversion to IFRS) and how they impact goodwill impairment testing, purchase price allocations, etc. thommo77 Wrote: ------------------------------------------------------- > ^I agree with higgmond and Mobius Striptease. > Private company valuation work is often complex > because you are not dealing with a set of > financial statements that has been audited for SEC > purposes. Many times, the adjustments are far > more complex than the traditional public company > adjustments. In addition, many private companies > are niche companies where it is difficult to come > up with suitable guideline public companies so > valuation is tricky and requires a high degree of > critical thinking skills.
With respect to designations, the vast majority of prominant valuations professionals in Canada hold the CBV designation. I can’t speak for the U.S. and whether ASA holds the same weight. I have never seen a valuations partner in a Big Four in Canada without a CBV designation. CFA is well respected in virtually any finance field. It’s really a designation that you can’t go wrong with in terms of building credibility. Agree with the poster that is does have some aspects applicable to valuations including DCF, beta, comps, WACC, etc. You could pick this stuff up pretty quickly with a little reading through.
You all have made some good points regarding the field of valuation. First and foremost, while very well respected, the CFA is overkill by about 6 to 8 fold. If you are working in valuation, and doing the CFA, it’s only because you are trying to get out of valuation and into research, PE, investment management etc. If you are not working in valuation, you are not doing the CFA to get into valuation. As stated, depending on the type of firm, different designations in valuation are preferred. Many regional accounting firms like CPA/ABV combinations, and for litigation support work, generally the CPA and ASA are desired. Large valuation companies look for ASA or CFA. Valuation, in a nutshell, isn’t very stimulating work. There are two main areas of valuation - Financial reporting and Tax planning. yes, i know there are other areas including fairness opinion and litigation (including economic damages, divorce, property tax and condemnation), but for the most part its one of the two. Financial Reporting: If you work in financial reporting, you will be doing mostly FAS141R and IFRS3 purchase price allocations. A purchase price allocation, while it seems financial in nature, is really more of some bizarre accounting exercise. I will explain what you will be spending most of your time doing, and then you tell me if you think you need the CFA to spend your life doing this. Step one, for no reason but because the auditors will ask, you determine the IRR of the deal. The only thing this does is justify the purchase price and your discount rate calculation. Brain power used for step 1 on a scale of 1-10, with 1 being tying your shoes, and 10 being performing surgery while attempting to land on Jupiter: 0.5. yes, tying your shoes is more difficult cuz sometimes you make the knots too big or small. Step two - value everything they acquired (assets and liabilites) - equipment, real estate, securities, intangible assets and liabilites. Intangible assets is where most of your time is spent, valuing things like customer relationships, research and development, contracts, tradenames… You build up a WACC with a couple commonly accepted approaches of either the CAPM or starting with a RFR and adding a bunch of premiums from a big silly book to it. If you work for a big4 type firm and there are complex securities or derviatives included in the transaction, there is a separate group of MSF and MFE types who just do that, so you can’t even have a lil fun. Make a bunch of tables and a report which then is reviewed by the audit firm. FAS142 Goodwill impairments - Basically if a firm has goodwill on their balance sheet you value the company yearly to test if its BEV has gone down. If it has, you revalue the balance sheet to see if there is an impairment in the goodwill. That is most of your work, sure some firms spend more time doing some derivatives accounting, but this is most of the finanical reporting work you will do. Oh, and if you work for big 4, you will spend a good amount of time just reviewing other people’s purchase price allocations. Tax Planning - Most tax planning work involves valuing private companies and then applying a discount for lack of marketability on the share value. you use either an income approach or a guideline public company which is looking at multiples of similar public companies. So thats valuation. And if you work at a big 4 type of place, you are fortunate enough to use your CFA to work in a 40 story building full of accountants and hope at the end of the year you get your 10% bonus. I actually recently spoke to a big 4 val guy who while looking at the CFA on my resume said he would rather someone have an ASA than a CFA because anyone can cram for a test a few times. I couldnt help but laugh my ass off. So I guess I went off topic, as to what you should get for valuation, but I feel I have contriubted to the greater good by shedding some light on the age old question, “why business valuation?”. I would say that if you are an accountant and you would rather do valuation, stick with your CPA. I think if you are doing the CFA program and find it interesting and challenging, you will quickly say, I hope I can pass this and gain alot of knowledge and get the F out of valuation ASAP. Happy Thanksgiving all, and feel free to send me an e-mail.
dieselbp67 What’s your email? Thanks
Mobius Striptease Wrote: ------------------------------------------------------- > bhill020 Wrote: > -------------------------------------------------- > ----- > CFA > > fairly inapplicable to private co valuation. > > > > totally false. there is a good portion of material > in CFAI textbooks dedicated to the valuation of > illiquid investments. relative company valuation > and selection of multiples from guideline public > companies, levering/unlevering betas from a pool > of guideline companies, illiquidity discounts, > valuation of early stage companies. …which is utter rubbish material btw. I think many people here overestimate the CFA and underestimate accounting.
The new fair value paradigm IS finance, not accounting. As IFRS becomes the standard, the CFA grows in stature and application. In 10 years certain aspects of accounting (like those referenced earlier 141R, 142) will require a CFA, not a CPA.
diesel has some good insight, the “traditional” old-school valuation for financial reporting is almost all 141/142, which has a little bit of finance and a lot of (sometimes bizzare) accounting rules you are forced to follow. nearly all small valuation shops do that, in addition to some fairness opinions which the big 4 don’t touch. the interesting valuation work is done in some offices mostly in the larger firms, so you need to be the lucky right person to get there, if that’s what you want to do. A lot of 157, marking to market portfolios of PE firms that hold various illiquid exotics for which models need to be build. A lot of 133, bifurcation and valuation of embedded derivatives in hybrids. Some 123/409a - cheap stock valuation for venture capital firms that have complex capital structures consisting of common and convertible preferred, warrants, etc. As fair value accounting is becoming more standard, there is a trend in increasing demand for more advanced valuation skills, but for now it is mostly exception to the rule than the norm.
I agree with what mobius is saying. Mobius - I’m a CFA/ASA at a boutique. I have to say though, valuation of intangible assets is an interesting and evolving area. With 70% of businesses today either technology or service oriented, those assets will continue to receive attention, don’t you think?