Below are a few pointers on when using excess earnings to value a business is appropriate:

1. The company's value is derived primarily from its earnings (applies to most companies).
2. The company has an established earnings history.
3. Enough�reliable data is available to reasonably estimate expected normal earnings.
4. Current earnings are expected to approximate future earnings.
5. Earnings�for�the subject company are significantly positive (that is, neither negative nor marginally positive).
6. Expected growth rates are modest and predictable.
7. If�valuing a controlling�interest, owners' benefits can be reasonably estimated. (such benefits include compensation, perquisites. personal expenses paid�by�company.)
8. The business being valued is a small business or professional practice.