ABV Economic & Industry Analysis Flashcards
6 cards from real ABV practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 6 ABV Economic & Industry Analysis flashcards as text
What is the primary purpose of analyzing macroeconomic conditions when performing a business valuation?
Answer: To assess how broader economic trends affect the subject company's future cash flows and risk
Macroeconomic analysis provides context for forecasting a company's future performance and setting appropriate risk assumptions.
Which of the following is considered a leading economic indicator useful in business valuation analysis?
Answer: Building permits issued
Building permits are a leading indicator because they signal future construction and economic activity before it occurs.
In a business valuation, 'normalizing' financial data for economic conditions typically means:
Answer: Adjusting historical results to reflect sustainable, mid-cycle economic performance
Normalization removes the distortions of peak or trough economic cycles so the income stream reflects a sustainable level.
What does a rising interest rate environment typically imply for business valuations under the income approach?
Answer: Lower present values because discount rates increase
Higher interest rates increase discount rates, which reduces the present value of future cash flows in the income approach.
Which framework is most commonly used by ABV practitioners to analyze the competitive forces within an industry?
Answer: Porter's Five Forces
Porter's Five Forces examines competitive rivalry, supplier power, buyer power, threat of substitutes, and barriers to entry to assess industry attractiveness.
What is the purpose of using SIC or NAICS codes in a business valuation?
Answer: To identify comparable guideline companies and relevant industry benchmarks
Industry classification codes help valuators locate comparable companies and applicable financial benchmarks from the same industry.