THE WEEK ON WALL STREET
Stocks roared higher last week, powered by upbeat trade news and tame inflation reports. The S&P 500 Index rose 5.27 percent, while the Nasdaq Composite Index spiked 7.15 percent. The Dow Jones Industrial Average added 3.41 percent. The MSCI EAFE Index, which tracks developed overseas stock markets, increased 0.80 percent.
FACT OF THE WEEK
On May 19, 1962, Marilyn Monroe sang a breathy "Happy Birthday" to John F. Kennedy during his birthday gala. Her iconic sequined dress from the performance became the priciest dress ever sold at auction in 2016, fetching $4.8 million.
MARKET MINUTE
S&P, Dow Erase YTD Losses
Stocks pushed higher on Monday as investors cheered weekend news that the U.S. and China temporarily agreed to back off steep reciprocal tariffs. Then, a mild inflation report for April—the slowest annualized Consumer Price Index (CPI) reading in four years—boosted markets on Tuesday. Tech stocks powered the rally as the S&P 500 closed trading in the green for the year. Markets closed the week with modest gains, largely looking past weak consumer sentiment data released on Friday. Friday was the Dow’s turn to erase year-to-date losses and get back in the green while the Nasdaq and S&P notched a five-day winning streak.
All Eyes on Economic Data
The retail (CPI) and wholesale inflation reports (Producer Price Index) were mild, although most economists didn’t expect tariffs to impact prices in the first month of implementation. Retail sales ticked up slightly (as expected), while industrial production and housing starts showed signs of tariff impact. Expect traders to continue to closely watch economic reports to better understand whether tariffs are showing up in the data.
FINANCIAL STRATEGY OF THE WEEK
What is the Value of Your Business?
In the second quarter of 2023, more than 2,300 small businesses were sold. The median sale price was roughly $300,000, down 14% from the same time last year. As a business owner, ascertaining the value of your business is important for a variety of reasons, including business succession, estate tax estimates, or qualifying for a loan.
There are several valuation techniques, ranging from simple to very complex. Below are three different approaches to valuing a business.
Asset-Based: Calculates the value of all tangible and intangible assets held by the business. This approach ignores the future earning potential of the company. Thus, a pure asset-based valuation model is often used for companies that are bankrupt or looking to liquidate.
Earnings-Based: Seeks to arrive at a business’s value by applying a multiple to normalized earnings, i.e., earnings adjusted to subtract owner’s compensation and related expenses. The multiplier can vary substantially, depending on the industry and the outlook for the business.
Market-Based: Compares the business to recent sales of similar companies.
Business valuation is not just a formulaic exercise. For instance, there is a value to the business of being a “going concern” as opposed to the start-up alternative. Ownership percentage will also matter; purchasing a minority share that has limited control may result in a discount to the actual value. The prospects for the business can impact its value. A greater premium will likely apply to a company engaged in a leading-edge technology than it would to one involved in a mature market.
Valuing a small business is not an exact science. Some aspects of the valuation may be debatable (e.g., the remaining life expectancy of a machine), while other aspects may be positively subjective (e.g., the value of the company’s reputation).
Willing Seller & Buyer
The true value of anything can only be determined when a willing seller and a willing buyer agree on a price of exchange. As a consequence, any valuation exercise may yield only a rough estimate.
Before proceeding with a business valuation, consider working with legal and tax professionals who are familiar with the process. A qualified business appraiser may also offer valuable insight.