Let's say you want to sell or buy a business. Or, suppose you want to gift a piece of your business to your family. Maybe you want to raise capital?

Well, you'll need to determine the value of your business.

So, to get some perspective on the topic, I spoke to Scott Gabehart. He has valued over 700 businesses since 1991 and has written several books on the topic, such as The Business Valuation Book (with CD-ROM).

According to him, there are several approaches to getting a valuation:

Do-It-Yourself: Yes, the valuation process can be extremely complex. But Gabehart has an easy system that will provide a rough estimate.

First, you will need to calculate your company's adjusted cash flow (ACF). This is:

Net income
+ Your salary
+ Your perks (personal travel, discretionary expenses)
+ Depreciation
+ Interest expense

After all, it's common for owners to use their business to pay for personal expenses. Thus, it's important to factor our certain items (for example, depreciation is a non-cash expense).

Large-company stock prices have tumbled 13% in three months. Small-company stocks have done worse. The ratio of share prices to company earnings ("P/E") is the lowest it has been in more than a decade. But is it low enough to make the broad market cheap?

That depends on how you measure. Over the past 135 years, stocks have carried an average P/E of 15.1, based on trailing 12-month earnings. (I'm using data provided on the websites of Yale economist Robert Schiller and Standard & Poor's.) As of the close of trading Thursday, the S&P 500 index, which more or less tracks the stock performance of America's 500 largest companies, had a P/E ratio of 16.6. Viewed like that, stocks look a smidgen pricier than average.

Remove special charges for things like bad loan write-downs from the past year's earnings, and the result is a more alluring P/E of 14.9. Whether that's a fairer number or not is a matter of opinion. But if we were able to apply the same tactic to 135 years of corporate accounting, we'd surely end up with a lower historical P/E, too. That suggests again that stocks are pricier than average, but not worrisomely so.

I had the chance to talk with four different British portfolio managers this past Friday, review the 2007 year and discuss the outlook for 2008. Funny, the four conversations ended up circling back to Apple (NASDAQ: AAPL). Two of the managers mentioned my article for BloggingStocks from November 24. I wrote that the this could be the last time to buy the shares under $175. The stock closed at a new 52-week closing high on Friday at $194.30, almost $20 higher than the November 24 price. Yet, with all this action and performance, recently and all year, the stock is still a buy.

My friends the Brits are very bullish on Apple, and are aware of the price targets out there by the various analysts, including mine at $225. These four managers, by the way, manage $16 billion in the U.S. markets collectively. One has done the "internal modeling," and has a $290-$300 price target by year end 2008, and another has a $375 price target by mid-year 2009. All managers have sworn to me that they drank nothing harder than English tea during our conversations!!

Friday's news that the Israeli generic drug maker Teva Pharmaceutical Industries Ltd. (NASDAQ: TEVA), has received tentative approval from U.S. health regulators to market its generic version of GlaxoSmithKline Plc's (NYSE: GSK) Requip (Ropinirole HCl) tablets is just more proof that for investors, generics are the way to go. The tablets treat idiopathic Parkinson's disease and primary restless leg syndrome. The brand product had annual sales of approximately $455 million in the United States.

The bigger fundamental question has to do with the future of "big pharma"? Certainly companies like Merck and Co. (NYSE: MRK) and GlaxoSmithKline aren't going away anytime soon. The question is over the long run, with drug's continuously coming off patent, where is the growth going to come from? Generic makers like Teva (the world's largest generic firm) keep waiting for drugs to come off-patent, get approval to market a generic version, and immediately take significant market share away from the big pharma company. (Check out Zack Miller's analysis of this and other generic trends.) According to a report published by PriceWaterhouseCooper, by 2020 the pharmaceutical market is anticipated to more than double to US$1.3 trillion, but with weak pipelines, and soaring R&D costs, as well as higher legal costs, the big-pharma industry is at a crossroads.

Until we hear of a real long-term growth plan for big pharma, it seems like the best way to play the surging growth in he pharmaceutical market is to buy the generics.

Aaron Katsman is the lead Portfolio Manager and Managing Director of America Israel Investment Associates, LLC. and Senior Editor of IsraelNewsletter.com. Disclosure: Writer owns stock and is long TEVA. He has no position in any other stock mentioned as of 12/2/07.

Today marks the first time that Google (NASDAQ: GOOG) has touched upon the magical market capitalization figure of $200 billion. This is the company that will be the centerpiece of every MBA class 20 years from now, if not sooner. We have never seen anything like this before in the annals of the American stock market, nor anywhere else in the world. The stunning achievements of this 9-year-old company pale in comparison to where it is going to be in 3 years, 5 years and 10 years. Yes, the stock is still a buy -- actually a strong buy.

Traditional analysts and investors have attempted to put traditional barriers on Google when analyzing it. Can't do that, not going to work. Why? Because the world in which Google competes and dominates is so evergreen, that trying to put traditional growth numbers to the industry is nearly impossible. Google doesn't sell a physical hard product that requires delivery, set-up and training (although a Google phone is on the horizon). It operates in a virtual world -- and that's why many analysts and investors have tried to "temper" expectations. Temper is a fancy word for they haven't understood the story, have missed the story, and this is why it could become the first trillion dollar market-cap company.

Apple (NASDAQ: AAPL) is an extraordinary company that has rebounded with tremendous might over the past couple years. Apple's innovative genius is stretching to newer markets every year, starting with the iPod revolutionizing the MP3 player market, and more recently into the laptop market. Apple's Macbook and Macbook Pro laptop offerings are wildly popular amongst the entire U.S. consumer market for their ease of use, stylish appearance, and convenient size. Apple's computer segment is most likely going to continue growing, and many expect the company to launch an upgraded desktop computer within a few months. Oh, and we can't forget the iPhone, Apple's latest and greatest product offering that had a very successful launch about a month ago.

Shortly, Apple's financials for the quarter are going to hit the wires. Like many Wall Street analysts, I believe Apple will probably deliver an above-guidance/consensus earnings and revenues figure.

Anyone who reads my content knows that I'm a strong believer that trading and investing require different mind-sets. People interested in making a trade on the long side in Apple probably will make out well through earnings, but I'm not planning on getting long the stock simply because I think a consensus-slashing earnings report is already widely-expected on the street, and therefore priced in.

After saying all this, I still have a guilty confession: I don't think Apple is going to be a good purchase for long-term investors who believe that this growth can go on forever or that the current valuation on the stock is justified. While I would never short the stock because shorting only on value is a losing proposition, I think investors need to be aware of the risks in this seemingly effortless investment.

See also:
Brian White: Apple sees new 52-week price target of $175 and up
Brian White: Apple up 14% since iPhone launch
Georges Yared: Apple outlook: Why AAPL is on its way to $200
Peter Cohan: 7 Wonders of the Investment World

I love value investing. But in markets like today's, it becomes increasingly difficult to find undervalued stocks with attractive characteristics, and secular growth plays start to take my interest because, in a momentum market, moves are much more predictable.

But, like I mentioned in a post earlier this week, my mindset is entirely different when trading these names than it is when making long-term value investments. I tend to look at most of the trading companies merely as stocks, not as companies, because in the short term, that's all they are to the market -- names with a sector, news, and short term earnings figures.

People who read analyst or investment bank reports on a regular basis constantly see discounted cash flow models that seem to flow and create logical valuation. But I don't really see too much value in this form of DCF -- I tend to believe that making precise estimations of future growth in cash flows to be extraordinarily difficult. In fact, analysts struggle to hit estimates for growth even in shorter term quarter-quarter or year-year comparisons.

In addition, the entire issue of choosing a discount rate is always very subjective in my opinion. Some argue that the "cost of capital" should be calculated using academic models (beta, etc.) while others believe that the cost of capital is merely what could be earned investing the capital in something similar. So, for example, a risky stock's cost of capital using the second model might be 15% while a conservative stock might be 9%, because investors would demand a higher return from a riskier stock. I tend to believe the second case makes more sense, but I believe neither methodology makes perfect sense.

So, the long-awaited iPhone is finally out, meaning us bloggers can get back to writing about other things. No, probably not, as there seems to be more iPhone news than ever, combined with a slow holiday week with little else is going on.

So I'd like to take this opportunity to discuss Apple Inc's (NASDAQ: AAPL) valuation. Specifically I would like to reflect on a comment I received from a commentor named "George" from a previous post I wrote about the iPhone. In the post, I brought up some doubts about the phone, including price and the network it runs on.

Erik,

Your comments are both expected (from you), doomsaying and non-illuminating, all at the same time. It seems that you prepared for your column today by reading everyone elses thoughts on the value of Apple's stock, the sheer bravado of Apple to dare to come out with such a product that couldn't possibly work on a network that is clearly last tier annd their continued lack of success in the enterprise.

I think if I want an uninformed opinion on what Apple, the company or Apple stock is going to do maybe I should ask the other Buscemi...Steve

According to the Wall Street Journal (subscription required), more than half of this year's IPOs have been for companies that are unprofitable, the largest percentage in 7 years: since when the dotcom bubble burst. The piece points out that the unprofitable IPOs are more diverse than they were then, and investors are looking to companies that at least have a shot at being profitable at some point in the near future.

While there may be reasons to be worried about the optimistic climate on Wall Street, the recent run of unprofitable IPOs probably isn't one of them. Even though the companies may not currently be profitable, investors are at least examining them for sign of improving fundamentals. This isn't a case of pie in the sky optimism, with investors paying huge sums for companies with no revenues or hope of profitability.

The continued strength in private equity may indicate that markets have more room to run: Buyout firms are seeing value in many different industries.

So while it might be tempted to see a rise in unprofitable IPOs as a sign of the apocalypse, I think that would be an over-reaction.

MOST NOTEWORTHY: Openwave Systems Inc (NASDAQ: OPWV), Trump Entertainment Resorts Inc (NASDAQ: TRMP) and Accredited Home Lenders Holding Co (NASDAQ: LEND) were today's noteworthy downgrades:

• Openwave Systems Inc (NASDAQ: OPWV) was downgraded to Underperform from Buy at Needham, as the firm no longer believes the company's assets and balance sheet are worth $11/share and expects the franchise to be again disrupted due to layoffs and asset sales. Openwave was also downgraded to Neutral from Overweight at JP Morgan, to Hold from Buy at Wedbush after no superior bid emerged to Harbinger's, and to Sector Underperformer from Outperformer at CIBC World Markets, which cited reduced prospects of a buyout.

• Trump Entertainment Resorts Inc (NASDAQ: TRMP) was downgraded to Underperform from Peer Perform at Bear Stearns citing valuation as upside from a takeout at current levels is remote.

• Accredited Home Lenders Holding Co (NASDAQ: LEND) was downgraded to Market Perform from Outperform at Keefe Bruyette & Woods following its acquisition by Lone Star for $400M.

OTHER DOWNGRADES:

• Bebe Stores Inc (NASDAQ: BEBE) was downgraded to Market Perform from Outperform at Friedman Billings citing new merchandise that lacks a significant casual component to drive business, tough comps, aggressively planned inventory levels for 2H, and the potential for sustained negative comps during the next few quarters.

• Friedman Billings also downgraded Aladdin Knowledge Systems Limited (NASDAQ: ALDN) to Market Perform from Outperform based on valuation and challenges in the U.S. market.

• General Mills Inc (NYSE: GIS) was downgraded to Peer Perform from outperform at Bear Stearns on valuation and concerns with the turnaround plan for Big G cereal division.

Analyst summaries provided by TheFlyOnTheWall.com (subscription required).

Overnight, the Shanghai Composite fell almost 7%. Part of the reason is that the Chinese government is increasing the tax on stock trading to try to slow the overheated market.

The same index dropped 9% in one day last February. Markets around the world sold-off due to concerns that a collapse in the Chinese markets could hurt that economy and the ripple effect would hurt global growth.

But, that did not happen. Within a few days, the markets in China were moving up and made a number of new highs from April through late February.

The drop in the Shanghai market has a very different cause this time around. Increasing the tax on trading 3 times in one day is a pretty good incentive to cut down trading. Reuters quoted one analyst as saying: "In theory it shouldn't matter if Chinese stocks plunge, but markets are at high levels and investors are very aware of the downside risk."

But, the main reason for speculation, a hot Chinese economy, has not gone away. The price of trading is just a little higher, and that means that the market will probably keep going up.

Douglas A. McIntyre is a partner at 24/7 Wall St.

Lowe's Companies Inc (NYSE: LOW), the number two home improvement retailer, yesterday reported weak results, as one would expect considering the downturn in new construction and home remodeling markets. However, it appears year-over-year comparisons will begin to improve in the second half of the year, as the most difficult results anniversary.

Despite growth difficulties at its larger competitor, Home Depot Inc (NYSE: HD), Lowe's continues to grow EPS and is now selling for only 13.2x next year's earnings. In addition, its return on assets is 11%, ranking it in the top quartile of the S&P 500.

Same stores sales were down 6.3 versus a 5.7 gain last year. Lowe's is guiding towards a better second half of 2007, which should lead to some support for the stock.

When all is said, Lowe's is strong a company that is becoming quite cheap. As economic data continues to accumulate showing the US economy is weakening, the Fed will drop rates and both Lowe's and Home Depot's stocks will be off to the races. I'd get into home improvement stocks -- they are set to improve your portfolio's performance.

There seems to be no bounds on the mega amounts that private equity firms are willing to pay. Just some of the deals include the $29 billion purchase of First Data (NYSE: FDS) and the $45 billion buyout of TXU (NYSE: TXU).

So how do the pros come up with these valuations? Well, I had a chance to talk to Michael Wolfe, who is with Fesnak and Associates, LLP. He is not only a CPA but also has the ABV (Accredited in Business Valuation) and CVA (Certified Valuation Analyst) designations.

In his practice, Wolfe conducts valuations for a variety of private equity firms. "There are different approaches to valuing a buyout," he said. "But it really boils down to buying a stream of future cash flows."

To this end, Wolfe uses the discounted cash flow (DCF) method. This involves a projection of cash flows -- and even accounting for different scenarios.

There also needs to be a discount rate, which is an estimate of the risk of achieving the cash flows. "With the large influx of money into private equity firms," said Wolfe, "we are seeing discount rates fall in general. I'm not sure this means the actual risk has gone down. Only time will tell. So going forward, it will certainly be tougher for private equity firms to get the kinds of returns they have been getting over the years."

Tom Taulli is the author of various books, including the Complete M&A Handbook and the EDGAR-Online Guide to Decoding Financial Statements.

Today, Jacuzzi Brands, Inc. (NYSE: JJZ) closed its deal to be bought-out by Apollo Management for roughly $1.25 billion. Yes, by the end of trading, the company will no longer trade on the New York Stock Exchange.

True, the company has a set of strong brands (like Zurn and Sundance Spas). Yet, the housing slump has taken its toll. What's more, the volatility in commodity prices has not helped.

As a private company, Jacuzzi will be able to make some changes, such as reducing overhead and even outsourcing manufacturing.

The company has been trying to sell itself since late 2004. But, there was not much interest -- all in all, Apollo's valuation of 9.6X EBITDA does seem fair.

Tom Taulli is the author of various books, including the Complete M&A Handbook and the EDGAR-Online Guide to Decoding Financial Statements.

Today's Financial Times had several pieces providing evidence that emerging markets may be overheating. I wrote about one piece that discussed the large percentage of U.S. money being invested overseas. Another piece discussed the risk premiums on emerging market debt nearing record lows. Emerging market debt is currently trading with a yield just 165 basis points (1.65%), better than the yield on U.S. treasuries.

There are good reasons for the decrease in the risk premium. Government in emerging nations have better balance sheets than they once did, and some are currently buying back old bonds. According to J.P. Morgan, the size of the corporate bond market will be double the size of the external debt market.

But with record money pouting into emerging market equities, I wonder if the risk premium is disappearing simply because so many foreign investors are chasing emerging market bonds. There seem to be numerous signs of a bubble in emerging markets, and I would be careful about over-weighting them too much, as many investors appear to be doing.