Automobile Dealerships – Valuing Blue Sky

Blue Sky is the intrinsic value of an automobile dealership, over and above the value of its tangible assets. It is sometimes equated to the goodwill of a car dealership.

Most articles concerning the blue sky value of new car dealerships cite a multiple of earnings formula, such as three times earnings, four times earnings, and so forth. The idea that "blue-sky" can be determined by anything times is just plain wrong.

Even NADA the National Automobile Dealers Association in its publication entitled " A Dealer Guide to Valuing an Automobile Dealership , NADA June 1995, Revised July 2000 bemuses, in part, with respect to valuing a dealership by using a multiple of earnings: A Rule of Thumb valuation is more properly referred to as "greater fool theory." "It is not valuation theory, however."

In its Update 2004, NADA omitted its reference to "fool", but referred to the multiple formula as rarely based on sound sound economic or valuation theory, and went on to state: "If you are a seller and the rule of thumb produces a high value, then this is not a matter of great concern. Go for it, and maybe someone will be stupid enough to pay you a very high value. "

A dealership's blue sky is based upon what a buyer thinks it can produce in net profit. If potential buyers think it can not produce a profit, the store will not sell. If it can produce a profit, then variables such as desirability of location, the balance the brand will bring to other existing franchises owned, whether or not the factory will require facility upgrades, and so on and so forth, determine whether or not a buyer will buy that particular brand, in that particular location, at that particular time.

I have been consulting with dealers for nearly four decades and have participated in over 1,000 automated transactions ranging from $ 100,000 to over $ 100,000,000 and have never seen the price of a dealership sale determined by any multiple of earnings unless and until all of the above factors have been considered and the buyer then decided he or she was was willing to spend "x" times what the buyer thought the dealership would earn, in order to purchase the business opportunity.

To think otherwise would be to subscribe to the theories that (1) even though you think a dealership could make a million dollars, the store is worth zero blue sky because it made no money last year; and (2) if a store has been making $ 5 million per year you should pay say 3 times $ 5 million as blue sky even though you think you will not produce that kind of profit. Both propositions are absurd. If a buyer does not think a dealership is worth blue sky, then what he is really saying is that he sees no business opportunity in the purchase and therefore, in my opinion, he should not buy the store.

Each dealership is unique with respect to its potential, location, balance that its brand brings a dealer group, and condition of facility. The sale is also unique with respect to whether it is a forced liquidation, orderly liquidation, arms length, insider, or a case where an exotic buyer is trying to induce an unwilling seller. There are management factors to consider, length and term of leases, possibilities or non-possibilities of purchasing the facilities and whether or not the factory wants to relocate the store or to open a new store up the street.

In the car business it is impossible to pick a dealership or a franchise out of a hat, multiply its earnings by some mystical number and predict either what the dealership is worth, or what price it would sell for – and it does not matter if you are talking about a Toyota, Honda, Ford, Chevrolet, Chrysler, Dodge, or any other dealership. At any given time one franchise might be considered more or less desirable than another, but they are all valued in the same manner.



Source by John Pico JD

Forex Currency Symbols and Pairs Explained

When first learning about trading currency on the Forex, it's not unusual for your head to spin. Like learning anything new, there is a period of total confusion followed by a little clarity followed by your first glimmer of all the bits of information beginning to come together.

To assist you in your learning, I've compiled a list of the symbols of the most-traded treaties. The symbol is first, followed by the country and lastly the common name and nickname of the particular currency. These countries' currencies are involved in the highest number of transactions processed on the FX each day:

USD United States Dollar Buck

EUR Euro Euro Fiber

JPY Japan Yen Yen

CHF Switzerland Franc Swissy

CAD Canada Dollar Loonie

AUD Australia Dollar Aussie

GBP Great Britain Pound Cable

NZD New Zealand Dollar Kiwi

Each Forex currency symbol has three letters. The first two describe the country and the third the name of that particular country's currency.

The base currency is in the first position of a pair. You could also see it called the accounting, domestic or the primary currency. The second in the pair is called the quote or counter currency. The quote currency is the quantity of that currency that is required to purchase a single unit of the base currency.

Together, these 6 major Forex pairs account for 90% of all Forex transactions:

– EUR / USD: Euro and US dollar.

– GBP / USD: British pound and US dollar.

– USD / JPY: US dollar and Japanese yen.

– USD / CHF: US dollar and Swiss franc.

– AUD / USD: Australian dollar and US dollar.

– USD / CAD: US dollar and Canadian dollar.

Because the US dollar is either the base or the counter currency in 85% of Forex trades, which means it is in all of the major pairs. Any pairs without the USD are called 'cross rates.' This is how Investopedia explains a cross rate:

"If an exchange rate between the Euro and the Japanese Yen was quoted in an American newspaper, this would be considered a cross rate in this context, because either the euro or the yen is the standard currency of the US However, if the exchange rate between the euro and the US dollar were quoted in

that same newspaper, it would not have considered a cross rate because the quote involves the US official currency. "

What is the best pair for beginning traders?

The currency pair to begin trading with is EUR / USD, for two reasons:

1. Because EUR / USD is the most commonly traded pair, which means liquidity is high and the spread, which is your cost, is usually low.

2. Because ample data is readily available on both currencies, so it is easy to access financial news and alerts. The second most traded that a beginner may choose to start with is GBP / USD.

Whichever pair you choose, do try to stay with one pair when you're just getting started. If you try to follow too many pairs to start, it becomes very difficult to stay on top of the new, prices and trends.



Source by Tracy Austin