BVWire Australia Issue #4-1 | 1 November 2014

Dear Colleague,

What were the takeaways from last week’s very successful Business Valuation and Forensic Accounting Conference put on by the Chartered Accountants Australia and New Zealand? This issue of BVWire—Australia is jam-packed with a full rundown of noteworthy sessions and insights shared by a host of prominent business valuation leaders.

PwC partner Richard Stewart explored the nuts and bolts of business valuation practice in the ever-evolving Australian resources industry, while corporate finance expert Andy Gilmour resolved a common concern for many valuation practitioners by discussing a regularly contested area of practice: SME valuations. A full-day workshop presented by expert Ben Kwan delved into valuation modelling and much more. Read below for more details.

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PwC partner Richard Stewart covers valuation in resources industry

In a conference preview article published in the October Business Valuation Australia (subscription required), PwC partner Richard Stewart talked about how his presentation is closely related to the internationalisation of the business valuation industry.

In the “Resource Project Valuation” session, Stewart used the burgeoning resources sector as a launching pad to examine valuation issues across the value chain—from the inputs, production, and bulk transport stages to the refining and processing, distribution, and retail stages.

According to Stewart, valuation approaches differ across the project lifecycle. For instance, the replication cost approach is used in the exploration and development stages but not in the production stage. Strategic value considerations come into resource project valuation as well and include factors such as geological risk and cost-curve positioning as well as taxation and royalties.

Stewart shared the following points:

  • All resource projects vary due to differences in ore deposit characteristics, geographic location, regulations, taxes, and royalties;
  • Valuation methods differ across life cycle and economics; and
  • Strategic valuation issues such as cost curve, infrastructure availability, and hedging should be considered.

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SME valuations a big headache for industry practitioners

In response to feedback from professionals who encounter issues when valuing small and medium-sized enterprises, Andy Gilmour spoke on some of the challenges facing practitioners who undertake them. In the 1 September 2014 BVWire–Australia, Gilmour said the idea for this presentation came in response to requests from his clients at RSM Bird Cameron.

“The quality of financial information isn’t there; the supporting documentation and sourced data aren’t readily available. There is a lack of publicly available information, and the information on the company or enterprise you have to value can be questionable,” Gilmour said.

In his conference session, Gilmour said common issues in SME valuation include normalisation of working capital along with which profit measure to adopt as the basis for determining future maintainable earnings, e.g., EBITDA, EBIT, profit before tax, and profit after tax.

“The purpose of this talk is not so much to provide the theory of valuations but to draw out from practical examples some of the issues encountered by the valuer in undertaking a valuation of SMEs and suggest solutions,” Gilmour said.

In a talk that explored a range of areas—from the definition of the SME market and the demand for valuations in that market to the characteristics of an SME and key issues in valuing them—Gilmour left practitioners with a list of issues that they must address when valuing an SME:

  • Quality of financial information;
  • Meshing of business/nonbusiness/noncommercial income and expenditure; and
  • Limited external evidence of multiples and limited sources of information.

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Financial expert goes into the basics of valuation modelling

Ben Kwan, an expert in financial modelling, valuations, and transaction modelling, delivered a daylong workshop on valuation modelling. Kwan, who is associate director of Corality, said the best practice methodology is not an ideology—it is the rules that guide the construction and modification of a financial model.

The main properties of a good valuation model are that it is fit for the purpose, well presented, and easy to check and update, he continued. “The challenge is to work according to a system that is easy to apply and remember.”

In his mind, model infrastructure should:

  • Keep inputs, calculations, and outputs separate;
  • Clearly define each assumption and group assumptions together;
  • Label, group, colour, and order worksheet tabs; and
  • Apply scenarios without overriding the base case.

Kwan went on to delineate what working capital is and explain the challenges of modelling it. “Why worry about working capital? Because it’s the true measure of the health of a business.”

Kwan discussed many other topics throughout the workshop—from the weighted average cost of capital (WACC) to the capital asset pricing model (CAPM). To find out more about his presentation, contact the Corality team or visit

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A to Z on best practice and case law in family law

In a panel aimed especially at forensic accountants and valuers, Trevor Vella—featured in the October Business Valuation Australia (subscription required)—discussed best practices and cases in family law alongside retired judge Hon. Ian Coleman SC, law partner Barry Frakes, and barrister Glenn Gould.

The importance of this topic was underlined by the fact that valuation is used in pre-action settlement negotiations as well as alternative dispute resolution (ADR), in preparation for a conciliation conference, and during trials.

Careful to draw the distinction between a valuation, an audit, and an investigation, the panel defined a valuation as a short-form report, a preliminary report, and indicative valuations. It is standard practice for expert valuers to rely on financial statements provided, and the panel advised experts to always ask the following about accounts:

  • Reasons for significant fluctuations in income or expenses;
  • Expense payments to associates;
  • Rental arrangements;
  • Loans to and from associates; and
  • Other items that on their face appear unusual or abnormal.

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Have you downloaded your issue of Business Valuation Australia?

Remember to subscribe to Business Valuation Australia (BVA), our quarterly journal for Australian and New Zealand business valuation practitioners. With BVA, you keep up with the latest thinking in business valuation, analysis of new methodologies, regulatory and standards updates, and much more. Highlights of the October BVA include:

  • Valuer’s Q&A Corner: advice from Bob Morrison, ASA, who taught the International Institute of Business Valuators (IIBV) course in Australia earlier this year;
  • Key valuation issues arising in family court, by Trevor Vella;
  • Applying the size premium, by Matthew Ashby; and
  • Five tips to enhance the valuation analysis, by Bob Morrison.

Learn more and subscribe today for $451 (AUD) a year. Click here or call 0011-1-971-200-4834.

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We welcome your feedback and comments. Contact the editor, Sonia Nair, at
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In this issue:

Resources industry valuation

Headaches in SME valuations

Valuation modeling

Family law and valuation best practices

Business Valuation Australia





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