CBB Business Valuation & Financial Analysis 3

Question 1

In the context of business valuation, 'working capital' is defined as:

Accepted Answer

Current assets minus current liabilities

Answer

Working capital = current assets minus current liabilities, measuring short-term liquidity.

Question 2

Which valuation approach is most appropriate when a business generates no profit but holds significant real estate and equipment?

Accepted Answer

Asset-based approach

Answer

The asset-based approach values individual assets and liabilities, making it ideal when tangible assets dominate and income is minimal.

Question 3

A broker uses Guideline Public Company data and applies a Price/Earnings multiple of 8x to a private company earning $200,000. What adjustment is typically required?

Accepted Answer

Apply a size and marketability discount

Answer

Private companies receive discounts for lack of marketability and size compared to publicly traded guideline companies.

Question 4

An accounts receivable aging report is reviewed during due diligence. Receivables over 90 days past due are most likely treated as:

Accepted Answer

Uncollectible and excluded from working capital value

Answer

Aged receivables over 90 days are often considered uncollectible and must be excluded from the clean working capital calculation.

Question 5

A seller's tax return shows $180,000 net income, but the broker identifies $40,000 in non-recurring legal fees. What is the adjusted SDE before owner compensation add-back?

Accepted Answer

$220,000

Answer

$180,000 + $40,000 non-recurring expense add-back = $220,000 adjusted earnings before owner compensation.

(CBB) Certified Business Brokers Practice Test

(CBB) Certified Business Brokers Practice Test

CBB Business Valuation & Financial Analysis 3