Business Valuation Report

Prepared for:

Branson Trucking Company

Valuation Date: December 31, 2011

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Branson Trucking Company

April 26th, 2020

Re: Business Valuation

Mr. Branson,

The purpose of this letter is to inform you that we have been engaged to estimate the value of

Branson Trucking Company as of December 31st, 2011. This valuation is based on the financial

information provided by your company.

In our opinion the fair market value of Branson Trucking Company is $7,752,000.00 based on

the narrative of this report. This report was designed to appraise the value of your company at the

time of David James’ exit.

Fair market value is described as the expected selling price of a business in which buyers and

sellers can agree to exchange.

This value was determined through an income approach, where future average earnings were

weighted and capitalized. The income method is preferred because it can predict more accurately

cash inflows. Profits are an essential element for business, and past earnings are relevant to the

valuation.

This opinion is subject to the assumptions and limiting conditions outlined in this report.

Sincerely,

Forensic Accountant

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Introduction

The intent of this valuation is to estimate the worth of the Branson Trucking Company at

the time of Dave James’ departure by estimating the 100% Fair Market Value of Branson

Trucking Company. Dave James held 25% of the company at that time. The standard of value

used in this appraisal is Fair Market Value. According to the IRS Revenue Ruling 59-60 a Fair

Market value is "The price at which the property would change hands between a willing buyer

and a willing seller when the former is not under any compulsion to buy, and the latter is not

under any compulsion to sell, both parties having reasonable knowledge of relevant facts. Court

decisions frequently state in addition that the hypothetical buyer and seller are assumed to be

able, as well as willing, to trade and to be well informed about the property and concerning the

market for such property."

The primary source of information that was used in preparing the appraisal is the

Business financial statements for the past five years. The company historic Income Statements

has been reconstructed to define the business earning potential for the selected business valuation

methods

This opinion assumed that the entity would continue in business for the foreseeable future.

Using the Capitalizing Earnings Method, the estimation of the fair market value of Branson

Trucking Company is equal to $7,752,000.00 as of December 31st, 2011. Multiple valuation

methods were considered; however, the approach mentioned above was the most suitable for this

company.

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Table of Contents

Introduction.................................................................................................................................................3
Company Information.................................................................................................................................5
Financial Condition.....................................................................................................................................6
Valuation Methodology...............................................................................................................................9
Valuation Conclusion................................................................................................................................11
Limiting Conditions and Assumptions......................................................................................................12
References.................................................................................................................................................13

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Company Information

The Branson Trucking Company was created by three brothers in Columbus, Ohio, in

1977. After the first five years, they started looking for more help to handle the business, mostly

for marketing and growing the company. Therefore, they hired Dave James in 1982, who showed

immediately to be an active member of the team and positioned the company as one of the major

carriers in the central Midwest.

This growth inspired the Branson Brothers to keep Dave happy by giving him stock

options. In 1995 Dave and the other three brothers equally owned one-quarter of the firm.

Branson Brothers desired to incorporate their family members into the company around

1990, but Dave James was objected to the thought of adding family members to the business.

Dave James threatened to leave the company, and some of the Branson’s thought it was a good

idea. After a long period of negotiations, it was determined that Dave James would resign and

receive one year of severance pay, and the three Branson brothers would buy his shares at its fair

value.

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Financial Condition

The accuracy of the business value estimation relies on business financial performance

and the ability of the company to continue growing. The table below is a reconstruction of the

Balance Sheet with the provided information by management:

Branson Trucking Company

Balance Sheet
For the Year Ending in December 31st, 2011
Assets    
Current Assets  
Cash 218,000
Accounts receivable, net 610,000
Inventory and Supplies 165,000
Prepaid expenses 141,000
Total current assets $ 1,134,000
Fixed (Long-Term) Assets  
Land 650,000
Building & Fixtures 2,920,000
Rolling Stock 4,230,000
Total fixed assets $ 7,150,000
Investments  
Bond Sinking Fund 340,000
Common Stock of other firms 650,000
Total Investments $ 990,000
Total Assets $ 9,274,000
Liabilities and Owner's Equity  
Liabilities  
Liabilities 5,100,000
Total liabilities $ 5,100,000
Owner's Equity  
Retained earnings 2,437,000
Other 1,737,000
Total owner's equity $ 4,174,000
Total Liabilities and Owner's Equity $ 9,274,000
Common Financial Ratios  

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Debt Ratio (Total Liabilities / Total Assets) 0.55
Current Ratio (Current Assets / Current Liabilities) 0.22
Assets-to-Equity Ratio (Total Assets / Owner's Equity) 2.22
Debt-to-Equity Ratio (Total Liabilities / Owner's Equity) 1.22

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Branson Trucking Company
Income Statement Comparison for the past five years
From 2007 to 2011

INCOME 2011 2010 2009 2008 2007

Sales 34,610,000 29,258,000 22,149,000 20,321,000 17,281,000
Less Sales Allowances (2,407,000) (1,186,000) (883,000) (768,000) (562,000)
Net Sales 32,203,000 28,072,000 21,266,000 19,553,000 16,719,000
Cost of Sales (21,677,000) (20,346,000) (14,122,000) (12,977,000) (12,617,000)
Gross Profit $ 10,526,000 $ 7,726,000 $ 7,144,000 $ 6,576,000 $ 4,102,000

   
Total INCOME $ 10,526,000 $ 7,726,000 $ 7,144,000 $ 6,576,000 $ 4,102,000
EXPENSES
Operating Expenses 8,738,000 6,488,000 6,452,000 6,894,000 4,886,000
Total Operating Expenses $ 8,738,000 $ 6,488,000 $ 6,452,000 $ 6,894,000 $ 4,886,000

Other Income
Gain (Loss) on Sales of Assets 344,000 254,000 254,000 671,000 588,000
Total Non-Recurring Expenses $ 344,000 $ 254,000 $ 254,000 $ 671,000 $ 588,000

Income (Loss) Before Taxes $ 2,132,000 $ 1,492,000 $ 946,000 $ 353,000 $ (196,000)

Income Tax Expense 960,000 665,000 286,000 15,000 -
   
NET INCOME (Loss) $ 1,172,000 $ 827,000 $ 660,000 $ 338,000 $ (196,000)
The summary of the past five years Income Statements is summarized in the table below:

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Gross Sales and Net Income Analysis:

Business gross sales has an average growth of 15.40% and Business Net Income has an average

growth of 86.95%

Net Income
Year Net Income Increase %
Increase
2007 (196,000) - -
2008 338,000 534,000 272.45%
2009 660,000 322,000 95.27%
2010 827,000 167,000 25.30%
2011 1,172,000 345,000 41.72%

Gross Sales
Year Gross Sales Increase %
Increase
2007 17,281,000 - -
2008 20,321,000 3,040,000 17.59%
2009 22,149,000 1,828,000 9.00%
2010 29,258,000 7,109,000 32.10%
2011 34,610,000 5,352,000 18.29%

The average net profit Margin is 2.049%

  2011 2010 2009 2008 2007

Net Sales 32,203,000 28,072,000 21,266,000 19,553,000 16,719,000
Net Profit (Loss) 1,172,000 827,000 660,000 338,000 (196,000)
Net Profit Margin 3.639% 2.946% 3.104% 1.729% -1.172%

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Valuation Methodology

There are three approaches for Business Valuations. The Income Approach, the Cost

Approach, and the Market Approach. Each approach has its considerations and under each one

there several methods to estimate business value.

-The Income Approach value is based on expected income generation. "There are

numerous methods within the income approach category, including capitalization of income,

discounted future income, discounted future cash flow, capitalization of excess earnings, and

others"(Crumbley, Smith, & Heitger, 2017).

-The Cost Approach value is determined based on business assets and liabilities. "This

method considers tangible and intangible assets and any contingent liabilities"(Crumbley, Smith,

& Heitger, 2017).

-The Market Approach value is on past sales of shares of this or similar business. "Some

of the numerous market approaches include the identification of comparable publicly traded

companies whose securities sell on a free and open market, the examination of definitive and

verifiable transaction data available on actual sales of similar privately held concerns, the

existence of actual or potential markets for a security, such as buy-sell or shareholder

agreements, and past transactions in the shares or other interests in the business

itself”(Crumbley, Smith, & Heitger, 2017).

This report considered as the most suitable Income Approach, and under this approach,

the method used is the Capitalization of an average and weighted Earnings. This method

estimates the average future earnings based on historical information. Additionally, it considers

that the most recent years weight more than the oldest ones. Then it is capitalized based on an

average price earnings ratio for similar trucking firms.

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The capitalization rate for this valuation was calculated as follow:

= (9+11+12+10+8)/5

= 10

The value of the business is calculated as follow:

Year Net Income Weight Total

2007 (196,000) 1 (196,000)
2008 338,000 2 676,000
2009 660,000 3 1,980,000
2010 827,000 4 3,308,000
2011 1,172,000 5 5,860,000
Total 15 11,628,000
Average annual Earnings 775,200
Average Price Ratio 10.00
Total Business Value 7,752,000

Therefore the 100% value of the business is $7,752,000.00

Then to calculate Dave’s share value, there two factors to consider. At first, we can believe that

Dave James was a key person as he played an extraordinary role in growing the company;

however, two years after he left, the business continued producing net income. Hence, Dave

James was not a key employee, and no discount should be applied.

Dave held 25% of the Business, then a 25% minority interest discount is appropriate:

= $7,752,000.00*25%

Dave’s shares value = $1,938,000.00

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Valuation Conclusion

This valuation relied on the Income Approach method to conclude that Branson Trucking

Company value is $7,752,000.00, and Dave James shares worth was $1,938,000.00. Also, the

company continues producing about the same average Net Income as before Dave James

resignation. The average net income from 2007 to 2011 was $560,200, and after Dave left, from

2012 and 2013, the average Net Income was $570,000. Therefore, we can conclude that they

continue in the same financial position as before Dave James Departure.

This opinion is unbiased and will be the same if Dave James, instead of Branson

Brothers, would have requested this report. This calculation is a comprehensive report of the fair

market value, regardless of who asks for it.

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Limiting Conditions and Assumptions

 This business valuation report is an opinion of fair market value. Any hidden asset can

change the value. Hence, it cannot be considered an accounting report or be used to

verify reporting.

 Business Valuations are time sensitive. Therefore, the value of the company is as of

December 31st, 2011.

 The provided financial statements are unaudited; hence their accuracy or completeness

had not been tested. The correctness of the financial statements is the sole responsibility

of the management of Branson Trucking Company.

 Even though all sources of information are considered reliable, this report does not

assume any liability for the accuracy of the information provided by third parties.

 Not subsequent events were considered for this report. This report relied on facts and

conditions existing as of the date of valuation.

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References

BUSINESS VALUATION REPORT. (n.d.). Retrieved April 25, 2020, from

https://www.rosscompanycpa.com/~rosscomp/files/Sample Certified Valuation Report(1).pdf

Crumbley, D. L., Fenton, J. E. D., Smith, G. S., & Heitger, L. E. (2017). Forensic and

investigative accounting (8th ed.). Chicago, IL: Wolters Kluwer

IRS Revenue Ruling 59-60 - Equity Valuation Associates. (n.d.). Retrieved April 4, 2020, from

https://www.equityvaluationappraisals.com/pdf/IRS-Revenue-Ruling-59-60.pdf

Sample Business Valuation Report - ValuAdder. (n.d.). Retrieved April 24, 2020, from

https://www.valuadder.com/product/sample-business-valuation-report.pdf

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