Expert Witness Journal Issue 63 October 2025 - Flipbook - Page 62
reviewing a business’ balance sheet and adjusting any
assets and liabilities that are not held at a market value, to
market value. A typical example of an adjustment might
be land which is sometimes valued in the balance sheet
at the original cost it was purchased for, rather than its
current market value.
might be possible that the consideration paid for this
interest could be used as a proxy for the current market
value of the business, if the assumption that the market
value is unlikely to have materially changed in such
a short timeframe holds true. Using this proxy is, in a
nutshell, the recent actual transaction approach.
This approach might be used in situations where a
business is more reliant on the value of the assets it owns
rather than the revenues and pro昀椀ts it can generate from
these assets. Property investment companies, (such as Ell
Ess DeeLandLord Limited), or farming businesses often
昀椀t these criteria.
While we have already mentioned Ell Ess Deevelopment,
the app developer, in the context of a turnover multiple
approach, given that it has only recently been acquired
by Ell Ess Dee Limited, this recent actual transaction
approach might also be an option.
It is worth remembering that using more than one
valuation method as a cross-check to each other, can
make a hypothetical valuation more robust, providing
the circumstances for using each valuation approach are
appropriate.
Asset-based valuations might also be appropriate where a
trading business is loss-making, or marginally pro昀椀table
and there may be more value in selling the assets, settling
the liabilities and withdrawing the residual cash, than
there is in continuing the trading operations.
Final thoughts
Discounted cash 昀氀ow (DCF) approach
This has only been a whistle stop tour of a few of the
valuation methods employed by forensic accountants, but
hopefully it has given you some insight into aspects of a
forensic accountant’s thought process, when approaching
hypothetical business valuations.
The DCF method is based on the assumption that the
value of a business, is equal to the net present value of
its expected future cash 昀氀ows. This means it re昀氀ects what
someone would be willing to pay now for the opportunity
to receive future cash 昀氀ows.
I must stress that there are no hard and fast rules about
when any particular approach should be employed, with
the availability, quality and reliability of information
as well as the speci昀椀c nuances of each situation being
factors that can impact which valuation methods can and
should be used.
This approach requires the production of detailed and
reliable medium to long-term forecasts of operating cash
昀氀ows and capital expenditure of the business. The total
value of these forecasted cash昀氀ows is discounted to re昀氀ect
both the risk and uncertainty in achieving these cash
昀氀ows as well as recognising that cash in the future is not
worth as much as if it was received today.
This approach can useful where historical and current
昀椀nancial performance is not necessarily indicative of
future performance, which can be the case for.
•
•
•
Start-ups or relatively new businesses that are
expected to undergo a period of signi昀椀cant growth.
Businesses that are expecting a step change in
performance, owing to, for example, entering a
new market, releasing new products or adopting a
di昀昀erent strategy.
Businesses that are planning on buying new or
selling existing trading divisions/subsidiaries,
materially altering their overall trading capacity and
performance.
Crowe Expert
Witness Services
Forensic and Tax Resolutions Specialists
Find out more about our Expert Witness Services:
www.crowe.co.uk
With any DCF valuation, it is important to remember that
the valuation is only as good as the forecasts it uses, with
forecasting always having an element of uncertainty and
crystal ball gazing.
Start the conversation
Martin Chapman
National Head of Forensic Services
martin.chapman@crowe.co.uk
+44 (0)121 812 0001
By process of elimination, the only remaining subsidiary
to be valued is Ell Ess Deesign Limited. Given the
impending release of its new cure for the common cold,
its pro昀椀tability is anticipated to skyrocket, which can be
reasonably accurately forecasted, given that the licensing
and distribution agreements for the next ten years have
already been negotiated. A DCF valuation may well be a
valid approach in this situation.
@CroweUK
John Cassidy
Partner, Tax Resolutions
john.cassidy@crowe.co.uk
+44 (0)20 7842 7356
@Crowe_UK
Audit / Tax / Advisory / Consulting
Smart decisions. Lasting value.
A recent actual transaction
Say, a couple of months prior, an arms-length third party
had bought an interest in the business to be valued. It
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