14 Aug Seller’s Discretionary Cash Flow Business Valuation
There are a few instances where valuing a business using the seller’s discretionary cash flow is appropriate. Here are some explicit examples
- The company’s value is derived primarily from its earnings/cash flow.
- The company has an established earnings history.·
- The company’s owner is a key employee who actively manages the company.
- The owner/manager can be readily replaced without negatively affecting the business.
- Reliable earnings/cash flow data is available for the subject company and comparative companies.
- Current earnings/cash flow is expected to approximate future earnings/cash flow.(if valuing a controlling interest. owners’ benefits can be reasonably estimated. (Such benefits Include compensation. perquisites. personal expenses paid by company).
- Earnings/cash flow for the subject company and comparative companies is significantly positive (that is. neither negative nor marginally positive).
- The definition of value used in the assignment is intrinsic value.