After reading the case, you will choose one side to assist (you’ve been hired by Dave James OR you’ve been hired by the three Branson brothers). Prepare a Business Valuation Report with applying any premiums or discounts that other business valuators might use at a discount rate of 20 Explain the reasoning for applying any premiums or discounts that other business valuators might use. Discuss limitations, if any, in your report. Introduction (Crumbley & Fenton, 2021): The Branson Trucking Company, a family-run business based in Columbus, Ohio, faced a significant change at the end of 2020 when Dave James, a key player in the company’s growth, resigned after years of contributing to its success. As the company grew from a regional carrier to a major player in the Midwest, James’s marketing expertise played a crucial role, earning him stock options and a 25% ownership stake alongside the three Branson brothers. Internal disputes over bringing additional family members into the company led to James’s departure, prompting the Branson brothers to buy out his shares. In this scenario, I have been hired by the Branson brothers to provide a business valuation of Dave James’s 25% ownership interest at the time of his exit, using industry-standard methods and analyzing the financial data of Branson Trucking from 2016 to 2020. This report will determine the fair market value of his stake and provide a detailed explanation of any discounts or premiums applied. Company Information (Crumbley & Fenton, 2021): Branson Trucking Company, started in 1990 by three brothers in Columbus, Ohio, grew into a leading regional carrier with the help of Dave James, who joined in 1995 to drive marketing efforts. By 2015, the company’s ownership was split evenly between the brothers and James. Branson Trucking serves manufacturers and retailers, relying on key suppliers for fleet maintenance. The company operates in a competitive trucking industry and maintains stable banking relationships. Despite recent challenges, the company remains financially strong, with $10.5 million in assets. Financial Condition: The financial condition of Branson Trucking Company shows a trend of steady improvement from 2016 to 2020. In 2016, the company faced a loss of $196,000, but by 2020, net income had risen to $1.17 million, indicating a significant improvement. Sales increased from $17.28 million in 2016 to $34.61 million in 2020. The company’s assets were valued at $10.5 million by the end of 2020, while total liabilities stood at $5.1 million, resulting in a solid net asset position. Retained earnings also grew to $2.44 million by 2020, reflecting strong profitability and reinvestment. Overall, Branson Trucking appears financially stable and shows growth at the time of Dave James’s departure. The valuation utilizes the Income Approach, specifically the Capitalization of Income Method. This approach is appropriate for Branson Trucking, given its demonstrated history of consistent earnings. The Income Approach converts the company's anticipated future income into a present value by applying a capitalization rate. Average Price-to-Earnings (P/E) Ratio: For regional trucking companies from 2016-2020, the average P/E ratio is estimated at 12. Capitalized Net Income Calculation: Using the 2020 net income of $1,172,000 and a P/E ratio of 12, we estimate the fair market value as follows: Market Value=P/E Ratio*Net Income Market Value=12*1,172,000 = 14,064,000 Branson Trucking’s total estimated market value as of December 31, 2020, is $14,064,000.
After reading the case, you will choose one side to assist (you’ve been hired by Dave James OR you’ve been hired by the three Branson brothers).
- Prepare a Business Valuation Report with applying any premiums or discounts that other business valuators might use at a discount rate of 20
- Explain the reasoning for applying any premiums or discounts that other business valuators might use.
- Discuss limitations, if any, in your report.
Introduction (Crumbley & Fenton, 2021):
The Branson Trucking Company, a family-run business based in Columbus, Ohio, faced a significant change at the end of 2020 when Dave James, a key player in the company’s growth, resigned after years of contributing to its success. As the company grew from a regional carrier to a major player in the Midwest, James’s marketing expertise played a crucial role, earning him stock options and a 25% ownership stake alongside the three Branson brothers. Internal disputes over bringing additional family members into the company led to James’s departure, prompting the Branson brothers to buy out his shares. In this scenario, I have been hired by the Branson brothers to provide a business valuation of Dave James’s 25% ownership interest at the time of his exit, using industry-standard methods and analyzing the financial data of Branson Trucking from 2016 to 2020. This report will determine the fair market value of his stake and provide a detailed explanation of any discounts or premiums applied.
Company Information (Crumbley & Fenton, 2021):
Branson Trucking Company, started in 1990 by three brothers in Columbus, Ohio, grew into a leading regional carrier with the help of Dave James, who joined in 1995 to drive marketing efforts. By 2015, the company’s ownership was split evenly between the brothers and James. Branson Trucking serves manufacturers and retailers, relying on key suppliers for fleet maintenance. The company operates in a competitive trucking industry and maintains stable banking relationships. Despite recent challenges, the company remains financially strong, with $10.5 million in assets.
Financial Condition:
The financial condition of Branson Trucking Company shows a trend of steady improvement from 2016 to 2020. In 2016, the company faced a loss of $196,000, but by 2020, net income had risen to $1.17 million, indicating a significant improvement. Sales increased from $17.28 million in 2016 to $34.61 million in 2020. The company’s assets were valued at $10.5 million by the end of 2020, while total liabilities stood at $5.1 million, resulting in a solid net asset position.
The valuation utilizes the Income Approach, specifically the Capitalization of Income Method. This approach is appropriate for Branson Trucking, given its demonstrated history of consistent earnings. The Income Approach converts the company's anticipated future income into a present value by applying a capitalization rate.
- Average Price-to-Earnings (P/E) Ratio: For regional trucking companies from 2016-2020, the average P/E ratio is estimated at 12.
- Capitalized Net Income Calculation: Using the 2020 net income of $1,172,000 and a P/E ratio of 12, we estimate the fair market value as follows:
Market Value=P/E Ratio*Net Income
Market Value=12*1,172,000 = 14,064,000
Branson Trucking’s total estimated market value as of December 31, 2020, is $14,064,000.
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