The purpose of a valuation therefore is to indicate Telephone Number List to the seller and/or the buyer what price would represent a favourable financial outcome to them based on their required rates of return. The purest method of valuation is the discounted cashflow (or net present value) approach however this method requires precise Telephone Number List knowledge of all cash inflows and outflows between now and infinity for the business.
Whilst this method is great for some Telephone Number List financial assets with guaranteed cashflows it is impossible to apply to a business with variable cashflows. The next best alternative used by most business valuers is a modification of the above Telephone Number List method called the capitalisation of future maintainable earnings method. This method requires the valuer to forecast the most likely annual earnings figure (earnings before interest and tax) that will then be used as an annual recurring amount in the calculation.
The valuer then applies a capitalisation rate to those Telephone Number List earnings based on a required rate of return to give the business a value. Future maintainable earnings (profits) The earnings will usually be calculated based on the past performance of the business as well taking into account estimated projections. The net profit Telephone Number List from the financial statements is adjusted to take into account various factors that are artificial or non-commercial amounts in the financial statements.