summary of the document
A business valuation is a process by which one determines the economic value of a business or shares of the business. This gives owners an objective estimate of the value of their company. A business valuation will occur if an owner wants to sell a portion of the whole business, and in some cases, the whole business. The valuation process tells the owner the current worth of their business by analyzing all aspects of the business, including management, capital structure, future earnings, and the market value of its assets. The three different approaches to a business valuation are the asset-based approach, earning value approach, and the market value approach (Peek., 2022).
The case I found MacDermid Printing Solutions, Inc. v. Early 2004, Cortron Corp is about the two entering into a business contract to manufacture a product. The defendant and Counter claimant Cortron Corp contend that Plaintiff and Counterclaim Defendant MacDermid destroyed its business and proposes to introduce expert testimony on damages from Kramer that is based on a valuation of the business. MacDermid provided Cortron with the design to manufacture a thermal flexographic processing machine, when MacDermid entered into a contract, at that time, only one other business was using such technology which was DuPont. When DuPont found out that Cortron was manufacturing the machinery, in early 2008 they filed a lawsuit against Cortron alleging that the work with MacDermid was an infringement of one of their patents. Cortron and DuPont settled the lawsuit in an agreement to cease the manufacturing of the product without the express written consent of DuPont. Among other things, DuPont agreed to indemnify Cortron against any lawsuit brought by MacDermid. In addition, it was alleged that Cortron gave DuPont the technical information relating to MacDermid’s technology. DuPont then issued a press release announcing its settlement with Cortron, and in late 2008, Cortron ceased all operations and closed its business (Thomas Reuters Westlaw., 2014). Corton had no right to give DuPont the technical information that was related to MacDermid’s technology because I am sure sharing of the information of the technology was not part of the contract between Corton and MacDermid (Thomas Reuters Westlaw., 2014).
After Corton closed the business, the plan was to offer Mr. Kramer the fair market value of Cortron. Mr. Kramer performed the valuation using the destruction of business methodology which according to his report is appropriate for businesses that have been destroyed and not merely injured. The destruction of business method measures damages by calculating the market value of the business on the date of the destruction less any salvage value in assets (Thomas Reuters Westlaw., 2014). To calculate the fair market value of the business in 2004, Mr. Kramer selected the income approach which values a business by projecting the business’s expected income stream and discounting that income to derive at present value. The income stream that was relied upon was financial projections created by a Cortron employee, and no adjustments were made by Kramer before conducting his analysis. It was made clear in Kramer’s report that he will express no opinion as to causation and that his valuation opinion is based on financial projections provided by Cortron’s management. The attack on this case focuses on the application of the method used to evaluate the business, however, the Second Circuit expressly approved the destruction of the business valuation method used by Kramer. I do think that the use of the method was correctly used, and Kramer did testify that he did not simply used the projections provided but checked them with management about the patents they had and about the work they were doing as well as about their expectations prior to using the numbers that were presented. The projections was also compared to historical data. So all in all, I do think the way Kramer handled the valuation of the business was in the right manner (Thomas Reuters Westlaw., 2014).
When businesses are destroyed as a result of wrong doing there are two methods that may be used. One, appraise the value of the plaintiff’s business at the date of loss, and two, calculate the plaintiff’s annual loss of profits. Under the business valuation method, the remedy applied is to have the defendant purchase the destroyed business from the plaintiff at its fair market value at the date of loss and the value should be equal to the present value of the cash flows that would accrue to the owner of the business. Under the loss-profits method, one forecasts the annual profits for the destroyed business based on the actual economic and industry conditions from the date of damage to the date of trial and on into the future. The plaintiff’s lost profits should be discounted to reflect the projected profits were by no means riskless (MDD Forensic Accountants., 2022).