Scope of Work
There are numerous methods used in valuing a business. Traditional methods used
in valuing a business include:
 Capitalization of Future Maintainable Earnings;
 Discounted Cash Flows;
 Net Tangible Assets;
 Cost to Create Approach;
 Rule of Thumb or Multiplier Method;
 Return on Investment;
 Valuation of Specific Intangible Assets;
For the purposes of this Business Appraisal, after examining the salient facts
surrounding this assignment we have determined that the subject business should be
evaluated by a combination of the Capitalisation of Future Maintainable Earnings
method and the Return on Investment method by way of possible sale to a Financial
Buyer.
Capitalisation of Future Maintainable Earnings
Capitalisation refers to the quantifying in dollar terms the ongoing return on the
investment that is expected. This method forms an opinion on the business value
based on the sustainable profits generated by the business relative to the risk
expected. While not precise, it allows an investor to consider possible future returns
against other investment options.
This method is the most widely used and accepted methodology in business
valuations for small and medium businesses. As such, much of this section
concentrates on the workings of this methodology.
©AVANTIA 2007
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