Published by Becker’s Hospital Review
Ever since the Tax Cuts and Jobs Act (“Tax Act”) became law on December 22, 2017, the valuation community has been trying to understand its impact on business appraisal. At the time of passage, most valuation professionals agreed the provisions in the Tax Act would have a directionally upward impact on company value. Some experts believed the law would further fan the flames of a 10-year “bull” market in stocks; others viewed the law with more modest expectations. Time will ultimately reveal the long-term impact of the Tax Act; however, some insights may be obtained as we conclude 2018.
As a reminder, key provisions of the law that are positive for valuation include the following:
Alternatively, key provisions of the law that partially offset the law’s benefits include:
While most agree the Tax Act increased company value (all else equal), other dynamics seem to be at play which have muted its full benefit in 2018. The 21.1% increase of the S&P 500 index in 2017 may be partially attributable to the anticipated Tax Act; however, it is difficult to fully ascribe these gains to the Tax Act given large uncertainty surrounding the new laws even up to its passage in late December 2017. Since the new provisions became law, the performance of S&P 500 index has been surprisingly flat. Other dynamics the market seems to weighing include the following: