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A Reviewer's Handbook to Business Valuation: Practical Guidance to the Use and Abuse of a Business Appraisal by Timothy R. Lee, L. Paul Hood Jr.

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Chapter 8

Correlation of Value

In this chapter, we discuss the dynamics underlying the correlation of value. We also provide perspective concerning the assessment and reasonableness of a correlated indication of value.

Correlating a valuation conclusion that subsumes all the information, processes, analyses, and market evidence in a valuation engagement is no simple task. The term used by some appraisers for the resulting valuation distillation is correlated indication of value. For valuations in which the valuation methodology directly results in the value definition specified in the engagement, the correlated indication of value may represent the final conclusion of value. For cases in which the value definition differs from the direct results of the valuation methodology, the correlated indication of value is typically adjusted by valuation discounts or premiums (typically the former) to develop the value definition specified in the engagement. The correlated indication of value is a value that is arrived at through some reasonable, well-articulated, replicable, and credible process of selection, averaging or otherwise, of the total valuation evidence generated from the valuation methodologies employed. The flow chart shown in Figure 8.1 depicts the typical correlation process. There are numerous variations and potential interjecting steps and adjustments.

Figure 8.1 General Framework of the Correlation Process

In operation, developing a correlated indication of value may ...

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