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Business Valuation and Federal Taxes: Procedure, Law and Perspective, 2nd Edition by Shannon P. Pratt, David Laro

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Chapter 13

Economic and Industry Analysis

Summary

Almost every company is affected to some extent by economic conditions and by conditions in the industry in which it operates. No discussion of business valuation would be complete without at least a brief discussion of external factors. Various economic and industry factors affect each company differently, and the key to effective economic and industry analysis is to show how each factor impacts the subject company.

Some companies are affected by certain aspects of the national economy. Others are affected primarily by regional and local economic factors. Some are affected more heavily than others by conditions in the industry in which they operate. Economic and industry analysis identifies those factors that affect the subject company.

Objective of Economic and Industry Analysis

The objective of economic and industry analysis is to provide relevant data on the context within which the company is operating.

The key word here is relevant.

No company operates in a vacuum. All companies are impacted to a greater or lesser extent by external conditions. These could be national, regional, or local economic conditions and/or conditions in the industry in which the company operates.

The extent to which various economic and industry conditions affect differing companies varies widely from company to company.

It is the appraiser's job to identify what aspects of economic and/or industry conditions tend to affect the subject company, to ...

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