Valuing An Emerging International Technology Company

Abstract

The requirements of Financial Accounting Standard Board (FASB) 142 provide an excellent opportunity to examine various financial valuation methods used to determine a company’s value. Under FASB 142, goodwill and intangible assets with indefinite useful lives are no longer amortized, but instead tested for impairment at least annually in accordance with the provisions. Any impairment loss has to be measured as of the date of adoption and recognized as the cumulative effect of a change in accounting principle in an organization’s first interim period. The impairment test requires an accurate and fair valuation of the asset in question. This case is based upon the valuation dilemma faced by Integrated Silicon Solution (NASDAQ: ISSI), a publicly traded international technology company, in late 2008. ISSI had made several acquisitions and carried substantial goodwill. Since ISSI was publicly traded, a public market value was available but the financial crisis of 2008 caused the company to consider other methods, as is allowed under FASB 142. The case uses both the income and comparable market approaches to arrive at a fair value, and this value is used to determine if impairment for the goodwill the company carried on its balance sheet existed.