Business Valuations: Income Approach

Author: Robert K Minniti

This course is designed to be an introductory course on the income approach used in business valuations and business calculations. Participants will be exposed to various income approach valuation methodologies. We will discuss why the income approach is used, and when it is appropriate. We will also discuss the importance of maintaining professional standards so that the valuation opinion can be presented in a court of law. We will review the NACVA and AICPA standards.

Note: This course is designed to be a prerequisite for intermediate and advanced business valuation courses to be offered in 2022.

Publication Date: April 2022

Designed For
This course is appropriate for anyone who is interested in business valuations.

Topics Covered

• Introduction to market approach used in business valuations and business calculations
• Various market approach valuation methodologies
• Why the market approach is used, and when it is appropriate
• Discuss the importance of maintaining professional standards so that the valuation opinion can be presented in a court of law
• Review the NACVA and AICPA standards
• Business Sales vs Asset Sales
• Valuing a business
• Valuation engagements
• Small business financials
• Planning the engagement
• Standards of value
• Premise of value
• Income approach
• Income approach for business
• Income approach pros
• Income approach cons
• Present value
• Weighted Average Cost of Capital (WACC)
• Discounted Cash Flow (DCF) formula
• Terminal value
• Cost of capital
• Capitalization of earnings benefit stream
• Multi stage growth
• Discounted cash flow formula
• Summary discounted cash flow
• Capitalization of excess earnings
• Levels of value
• Premiums and discounts
• Current issues
• Conclusion of value
• Business valuation report

Learning Objectives

• Identify the reasons for performing a valuation engagement using income approach
• Identify basic income approach methodologies
• Identify the methodology that would be applied if more than 50% of the business was being valued
• Identify what is not considered a company specific risk
• Identify what is not a pro for using the income approach
• Identify the financial that is considered to fall under GAAP
• Identify what would normally be completed first using the summary discounted cash flow method

Level
Basic

Instructional Method
Self-Study

NASBA Field of Study
Auditing (2 hours)

Program Prerequisites
None

Advance Preparation
None