When to Use Excess Earnings to Value a Company

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.
Nate Nead on LinkedinNate Nead on Twitter
Nate Nead
Nate Nead is a licensed investment banker and Principal at Deal Capital Partners, LLC which includes InvestmentBank.com and Crowdfund.co. Nate works works with middle-market corporate clients looking to acquire, sell, divest or raise growth capital from qualified buyers and institutional investors. He is the chief evangelist of the company's growing digital investment banking platform. Reliance Worldwide Investments, LLC a member of FINRA and SIPC and registered with the SEC and MSRB. Nate resides in Seattle, Washington.
No Comments

Post A Comment