A Picture’s Worth a Thousand Words - Why Valuation Experts Use Visual Aids
Business valuation experts often use visual aids, such as graphs and charts, to capture the attention of a judge or jury and drive home key points. These exhibits may be presented orally during trial or deposition. They also may be provided in appendices to an expert’s written report.
Keep it Simple
Many people are visual, rather than auditory, learners. So visual aids are particularly effective in a courtroom setting, where the trier of fact may be expected to learn about a complex subject in a relatively short time. Verbal explanations may not be enough to explain complex issues or illustrate trends.
In addition to supplementing an expert’s oral testimony or written explanation, visual aids can:
- Enhance jurors’ attention and recall,
- Be more persuasive than nonvisual evidence, and
- Build the expert’s credibility.
Effective visual aids focus on one or two key points. Exhibits that present too much information — as well as the use of too many exhibits — can be overwhelming.
Graph Relationships and Trends
Graphs can be an effective way to convey financial information to a judge or jury. Examples of analyses that may benefit from the use of graphs include demonstrating 1) the change in revenue during a finite period of economic damages due to patent infringement, or 2) the relationship between sales prices and economic variables (such as revenue, earnings and book value) to determine the most relevant pricing multiple to use in the market approach.
For instance, suppose an expert is engaged to value a private company. She finds 13 comparable transactions over the last year. Then she creates three graphs that plot each comparable’s selling price against the following “independent” variables: earnings before interest, taxes, depreciation and amortization (EBITDA), annual revenue and operating cash flows. On each graph, the expert also plots a trendline that best fits the data points, using regression analysis. In statistical terms, her trendline minimizes the aggregate deviation from the data points to the trendline. Without getting caught up in statistical jargon — like standard deviations or correlation coefficients — her visual aids vividly demonstrate that the data points on the EBITDA graph have the closest “fit” and, therefore, the strongest correlation to value.
Show and Tell
Many business disputes require complex financial concepts and analysis. Rather than relying on written and spoken words to convey key points, consider preparing some visual aids that grab the judge’s or jury’s attention, clarify the issues and bolster the expert’s conclusions.