future maintainable earnings

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 [...]

Read the full article →

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 [...]

Read the full article →

Future Maintainable Earnings – Business Valuation Methodologies

by Arnold Shields 21 January 2010

The Future Maintainable Earnings (FME) methodology is the most common method of valuing profitable businesses in Australia. The future maintainable earnings methodology is a derivation or simplification of the Discounted Cash Flow (DCF) method. Whilst the discounted cash flow methodology is considered to be superior in determining the value of a business, the information available in a small business is not sufficiently reliable [...]

Read the full article →