Kick the Habit: The Excess Earnings Method Must Go!
- Topics:
- Valuation
- Source:
- American Society of Appraisers
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Overview: This article will expose the many problems with the excess earnings method as well as the large amount of criticism of the method that has come from all corners of the business valuation industry, including the very creator of the method. Business appraisers who continue to use the excess earnings method are perpetuating a great disservice to their clients, the courts, and the business valuation profession in general. Article explains different methods of valuations. One of them is basic rationale of the method. The excess earnings basically values a company in two pieces – the tangible value and the intangible value. The tangible value of the company is simply calculated as the value of the company’s tangible net worth. The intangible value of the company is calculated by capitalizing those earnings that are calculated to be in “excess” of what a reasonable amount of earnings would be on the company’s tangible net worth. Read the article to more about them in details.
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Format: PDF | Size: 46KB | Date: Jan 2003 | Pages: 5
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