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Research Math

Research Math. David Lamb Consultant, Target Analytics February, 2009. Today’s agenda. Part 1 Basic math - real estate research Higher math - public company officers Part 2 Advanced calculus - private company officers Tax math - foundations

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Research Math

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  1. Research Math David Lamb Consultant, Target Analytics February, 2009

  2. Today’s agenda • Part 1 • Basic math - real estate research • Higher math - public company officers • Part 2 • Advanced calculus - private company officers • Tax math - foundations • Philanthropy capacity – making sense of the math

  3. Real Estate Research

  4. Real estate as a wealth indicator • First, a few observations: • Real estate appraisal is a discipline unto itself • The primary purpose of real estate research is not to get a gift of property (though that might happen) • It is often impossible to learn about all the real estate some prospects hold • Liabilities related to real estate are usually hidden from view • Real estate is often the only asset that a researcher learns about a potential prospect

  5. A few real estate definitions Market Value – the price determined by a willing buyer and a willing seller Assessed Value – the value determined for tax assessment purposes Appraised Value – the value determined by an appraisal professional, usually based on more than one method of valuation (i.e. replacement cost or value as a rental property) Taxpayer’s Name – usually the owner of the property, sometimes the same as the individual’s given name, but can be the name of a company, partnership, trust or other entity

  6. Why is this information public? Protection of the public To allow you to verify that I am being taxed the same way you are

  7. Information source • Property taxing authority • Usually a county, but may be a township • Many taxing authorities make the tax records searchable on their web sites • No searching standards • Might have to know the parcel number or the address • Often name search is available • Quality and detail of data varies widely from one county to another • Vendors and other providers obtain the information and standardize it for searching • Lexis Nexis • DataQuick • KnowX

  8. More about taxes • The tax value of a property set by the rules of the state or county Source: http://www.pulawski.net/georgia.html

  9. More about taxes Source: http://www.pulawski.net/newyork.html

  10. Assessor’s record – sample search screen

  11. Sample assessor’s record

  12. Sample assessor’s record, cont’d.

  13. Sample assessor’s record, cont’d.

  14. Sample Estimated Value Search Source: Zillow.com

  15. How to hide your real estate • Record taxpayer name as someone other than the owner • Family trust • Spouse with a different last name • Send the tax bill to an address other than the owner’s home or business

  16. Consider other ways to search • Use a vendor • County by county search is inefficient • Counties may not allow name search • Vendors allow you to do national search by taxpayer or owner name and mailing address • Trade-off: efficiency and convenience for cost • Common vendors • Lexis Nexis • Dataquick • Use a realtor sales site • Corcoran (New York, Hamptons, Palm Beach) • Realtor.com

  17. Case-Schiller Home Price Index Shows the direction of national home prices Based on repeat sales of single family homes – new construction not included Includes 20 regional indexes All regions normalized to a value of 100 in January, 2000 For more detailed index, see the National Association of Realtors website

  18. Why is real estate important? Can be used as a way to gauge overall wealth Can be the gift if not where the prospect lives Can be given through a bequest

  19. Real estate research resources • Free • Portico – directory of assessors with online access indorgs.virginia.edu/portico/personalproperty.html • Christina Pulawski’s Tax Assessor Database – www.pulawski.net • Zillow – market value estimates http://www.zillow.com • Vendor supplied • Lexis Nexis • Dataquick • KnowX (www.knowx.com)

  20. Public Company Math

  21. Public company insiders • Definition • Top officer (policy making level) • Director • 5% shareholders • Must report their stock holdings and compensation • Easy to research • Smallest part of your constituency

  22. The things to find • Direct and indirect stock holdings of insiders • Stock options • Compensation of directors • Compensation of top officers • Other details (severance & retirement plans & more) • Current value of stock • Current stock holdings

  23. Current Information • Yahoo!Finance • Current Stock Price • Insider Roster • Insider Transactions • SEC Filings

  24. Where to find the information • Public company databases • Free • Yahoo!Finance • SEC Info • MarketWatch • Charge • Hoovers • 10K Wizard • Do you have… • More time than money? • More money than time? • Forms • 3 – Initial statement of ownership • 4 – Record of a trade • 5 – Annual statement of ownership • DEF 14A – Proxy statement • S1 – Initial Public Offering

  25. The proxy statement Election of Directors – bios of all the directors Beneficial Owners – stock holdings of all insiders Executive Compensation – salary, bonus and other compensation Option Awards and Exercises Director Compensation Retirement or pension provisions

  26. The proxy statement • Bio: HOWARD SCHULTZ, 55, is the founder of Starbucks and serves as our chairman, president and chief executive officer… • Stock ownership: 18,317,211 shares x $10.72 (2/9/09) = $196,360,502 • Cash salary: $1,190,000 • Other compensation: $764,366 • Options • Value of vested options: $62,759,150 • Value of options expiring in 2009 (based on 2/9 price) : $5,257,937

  27. Form 4 Search for SEC Filings to find Recent Filings Most recent Form 4 summarizes holdings

  28. Direct and Indirect Stock Directly held Stock Indirectly held Stock • Personal property of the insider • Easily gifted • Count as an asset • Legal owner is someone other than the insider • Spouse • Children • 401K • A trust • May or may not be gift-able • Do not count unless you understand the relationship

  29. Enough yet? There’s more. When your prospect is no longer with a public company When your prospect sells her privately-held company to a public company

  30. Public Company Resources • Free • U.S. Securities and Exchange Commission (EDGAR)www.sec.gov/edgar.shtml • Tutorial, description of forms, link to regulatory actions • Yahoo!Financehttp://finance.yahoo.com • MarketWatchhttp://www.marketwatch.com/tools/quotes/insiders.asp?siteid=mktw • Charge • 10K Wizardwww.10kwizard.com • Hooverswww.hooovers.com

  31. Private Company Math

  32. Closely Held Stock • When a company incorporates, it issues shares, known as “outstanding stock” • The value of the company is divided evenly among the shares • “Publicly held” stock vs. “closely held” • Finding the value of public company stock is easy • Finding the value of private company stock is difficult and expensive

  33. Why value a company? • The value of a company is influenced by the reason you’re asking the question • Reasons to value a private company: • To measure progress • To sell it • To raise capital from investors • Part of a divorce settlement • For a management buyout • For estate planning • For an employee stock ownership plan • For taxation • Change the purpose of the valuation and you change the stock price • Only fundraisers ask how it affects a gift

  34. Valuation in the real world • Information typically is not available on private companies • The value of a company is not necessarily identical to the bottom line on the balance sheet • Companies with a negative cash flow can have a high value • Companies with a positive cash flow might have a modest value

  35. Valuation in the real world To find out what a company is worth, sell it Value is partly (sometimes mostly) subjective Sometimes D&B provides a net worth figure Read everything you can about your target company – it’s not just numbers

  36. Target Company Iconic bookstore with three locations in the Denver metropolitan area Annual sales are about $20 million per IAC Company Intelligence Incorporated in 1973 Report lists 5 named officers Prospect is the CEO and founder No % of ownership is reported

  37. Ways to measure value • Book value • Price/earnings ratio (P/E) • Discounted cash flow • Comparison to similar companies of known value • Multiple: Known value/known annual sales • Apply the multiple to target company’s sales

  38. Comparable companies • Find a similar public company • Downside: a public company is almost always valued higher than an otherwise equivalent private company would be • Find a similar private company that sold recently • Downside: the only commonly available metric is sales, and value is not always clearly tied to sales or even profit • Comparison is only method that is possible if you have no access to the financial statements and appraisals of the assets is comparable companies

  39. Comparison to public companies • Yahoo Stock Screener (http://screen.yahoo.com/stocks.html) • Parameters that can be used • Industry (SIC or NAICS) • Sales • Enter relevant info for the target company • SEC.gov company search allows SIC search • If you don’t know the SIC, check http://www.osha.gov/pls/imis/sicsearch.html • If your search turns up no companies, try replacing the right-hand numbers with zero’s: 5261 becomes 5200 • Once you know the company name, look it up on your favorite public company site (e.g. finance.yahoo.com)

  40. Comparison considerations Market Capitalization is one good measure of public company value Your target company value is probably considerably less, even if otherwise equivalent Public companies tend to be much larger than their private counterparts Ratio of annual sales to market cap provides a multiple for the relevant industry The more examples the better Read the profile to see if the comparison company is similar in purpose to the target If the public company has flat or negative earnings, it may still have value

  41. Comparison to other private co.s • Business Valuation Resources (www.bvmarketdata.com) • Pratt’s Stats • Database of over 9,500 private company sales from 1990 to present • Deal price ranges from $1 million to $14.4 billion • Updated monthly with about 100 transactions added / month • $595 • Bizcomps • Database of over 9,500 private company sales from 1993 to present • 61% of the companies have gross revenues less than $500K • 18% of the companies have gross revenues over $1 million • $395 • INC. Magazine’s Ultimate Valuation Guide

  42. Inc.’s 2008 Valuation Guide Premium Zone Median Sale Price Discount Zone Median Annual Sales

  43. Inc.’s 2008 Valuation Guide Median Sale Price Median Annual Sales

  44. Inc.’s 2008 Valuation Tables

  45. BizStats Rules of Thumb http://www.bizstats.com/reports/valuation-rule-thumb.asp

  46. Business Classifieds Bizbuysell.com GlobalBX.com

  47. Pulling it all together • Company sales are reported to be $20 million • The one classified found for a bookstore supports a high ratio of value to sales • Inventory is unknown, but classified add suggests a possible inventory to sales ratio of 37.5% • Best guess of inventory: 37.5% x $20 MM = $7.5 MM • Alternate calculations: • Using BizStats (15% of sales + inventory) • $7.5 MM Inventory • $3.0 MM 15% of sales • $10.5 MM Total • Using Inc. Valuation Guide (43% of sales) • $8.6 MM

  48. Foundation MathHow to read 990s

  49. How corporation and foundation giving fits into a mature nonprofit’s fund-raising plan: For more details, visit the Giving USA Foundation™ site at http://www.givingusa.org/ Gifts from corporations and foundations (16.8%±) Gifts from people - individuals & bequests (about 83.2%±) 2005

  50. Resources – how to read the 990-PF Tip: Go to the IRS Web site at http://www.irs.gov/pub/irs-pdf/f990pf.pdf Print a blank 990-PF and then highlight the lines and sections that matter to you. • GuideStar 990-PF tutorialhttp://www.guidestar.org/index.jsp • The Foundation Center 990-PF FAQshttp://fdncenter.org/learn/faqs/html/990pf.html • Form 4506-A: Request for Public Inspection or Copy of Exempt or Political Organization IRS Formhttp://www.irs.gov/pub/irs-pdf/f4506a.pdf

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