Discounted Cash Flow

Factors in Determining the Level of Future Maintainable Earnings

by Arnold Shields 27 January 2010

Valuations are dependent upon a number of subjective assumptions. One of the main assumptions involves the level of expected future profitability. It is common to see as a basis for future earnings the average of the previous three years. Whilst the average of the previous three years may be appropriate, the reasons for choosing that basis are often not given [...]

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Understanding the Capitalisation Factor – Business Valuations

by Arnold Shields 27 January 2010

The most common method of valuing small profitable businesses is the Future Maintainable Earnings (FME) method. The formula for calculating the value of a business is: Future Maintainable Earnings X Capitalisation Factor = Value of Business The capitalization factor is defined as: “any multiple or divisor used to convert anticipated economic benefits of a single period into value.” That definition [...]

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