June 23 BVR Teleseminar

June 27th, 2009 | Income Approach & Methods

Tuesday's second BVR Seminar from contributors to the Guide to Healthcare Valuation was a great success. My colleague Tim Smith did an exceptional job of laying out the new paradigm for physician compensation FMV and Doug Smith highlighted just how complex forecasting Imaging revenue is in the current environment of downward pressure on price and utilization.

Among my own favorite observations: when the industry normal capital structure includes debt and a debt-free enterprise is being valued on the basis of an equity-only capital structure, one must consider the conceptual impact on the cost of equity of a levered/unlevered Beta analysis if using the build-up method. The cost of equity in a debt-free company must of necessity be less than that of a company with debt, all other things being equal.  That is one lesson in the current economic crisis that stands out as highly levered companies drop like flying bugs in a cloud of Raid(!). Failure to make the adjustment to the cost of equity results in an undervaluation of the entity.

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