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valuing a movie theatre sale price 27 Jul 2009 17:18 #31990

  • Mike
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"Movie theater assets typically sell at multiples of five to six times cash flow, but investment bankers expect the National Amusements theaters to sell at three to four times, mainly due to tight credit conditions and the company’s need to sell assets." This was from the sales article on National Amusements and projected sales prices of the theatres they are auctioning.

It strikes me this does not include real estate. Would you agree?
Michael Hurley
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Re:valuing a movie theatre sale price 28 Jul 2009 01:21 #31993

  • slapintheface
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I did read some were it include the real estate.will see if i can find were i read this.....
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Re:valuing a movie theatre sale price 28 Jul 2009 11:10 #31999

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I read an article on the SCORE.org website that said when using "the multiples of discretionary earnings method"... "The resulting value includes all the tangible assets needed to operate the business such as the fixtures, furniture, equipment and inventory." There is no mention of real estate.

In this same article it describes three methods of valuing a business. If real estate and other tangible assets are the major concern when selling a theatre, then I would look more closely at the first method described below. To see the full article, the link is www.score.org/article_business_valuation.html
Three Approaches to Valuing a Business
There are three approaches to valuing a business. The first approach is known as the Asset Based Approach. This approach derives an indication of value based on the costs to replace the tangible assets in like-kind condition. If the earnings will not support a value greater than the assets, then at best, the value of a business it the value of its tangible assets.

The Market Approach derives indications of value using ratios or factors derived from the earnings, sales and/or assets of past transactions of similar businesses. These ratios or factors are then applied to the subject company’s sales, earnings and/or assets to derive an indication of value. Rules of Thumb are also considered to be a Market Approach method; however, Rules of Thumb are dangerous because they are not very specific as to how the conversion factors were derived and at best Rules of Thumb are based on averages. If the subject business is not average, then Rules of Thumb will not properly determine value.

The Income Approach derives indications of value by converting some level of earnings into a value using a capitalization rate, discount rate or multiple. There are about five Income Approach Methods that appraisers frequently use to obtain indications of value. Each of these methods requires some level of earnings and a conversion factor to convert the earnings into a value. Properly matching the selected level of earnings (pretax, after-tax, discretionary or some form of cash flow) with the correct conversion factor (cap rate, discount rate or multiplier) is the key to obtaining a reasonable and supportable indication of value. If done correctly, each of these methods should produce similar values.
Last Edit: 28 Jul 2009 11:13 by lionheart.
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