Fair Market Value

Fair market value (FMV) is the price a reasonable person with all the pertinent knowledge would pay for a particular product/service or ownership rights of a business.  Fair market value is commonly used in the real estate industry, but it is much broader.   Anytime there are many buyers for a product, the buyers set the fair market value.   Limited buyers for a product creates questionable value.

Value Investing

Value Investing

Value investing is a concept of buying and selling stocks based on business fundamentals and not as a reaction to news or market trends.   It is a well accepted principle that often the market overreacts to news causing stocks to plummet in price or escalate in value.   Value investors ignore this and use sound business fundamentals to trade stock.   Much of historical wealth accumulation is based in value investments.   There are no short-cuts or sudden actions taken by value investors.  All decisions are derived by business analytics and trendlines.

EBITDA – Drawbacks

EBITDA

There are several business financial attributes required for EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) to work well as a basis for the multiple of earnings method (the method used with the Market Comparable Valuation Approach); see Fair Market Value  for a better understanding of the three primary business valuation approaches.

EBITDA – Buyer Beware (Case Study)

EBITDA

This article will illustrate the opposite effect using the same business information.   A buyer of a business should be leery of financial information and look for improper accounting processes.   The goal is to reduce the operational income and ultimately the value of the business.   The goal is to get the business valuation to a realistic number.

Financial Leverage in Real Estate

Financial Leverage

Financial leverage refers to using a third party’s money to increase profit for the borrower.  In real estate the profit or equity in the property is the weight being lifted by the use of a lever (borrowing money) on the fulcrum (the property).

Fair Market Value

Fair Market Value

Value at the individual level is strictly personal.  But as more buyers for the same item come into play the price of the item begins to stabilize.  If there are hundreds of thousands of buyers, the price reaches a high level of consistency or what is called ‘Fair Market Value’.

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