Business Valuation

CHAPTER 6Benefit Streams

PYRAMID STEP 6 Identify and develop appropriate benefit streams.

A key input in the valuation process under both the income and market approaches is an appropriate benefit stream. The analyst must identify whether the purpose and standard of value for the given assignment calls for an equity benefit stream or a market value of invested capital (MVIC) benefit stream. In addition, certain normalization adjustments may be necessary for the analyst to properly represent a consistent and ongoing long-term benefit stream. This may involve preparing a forecast for periods in the short term that may have inconsistent benefit streams, leading up to a reliable and consistent benefit stream into perpetuity. There may be multiple benefit streams that need to be identified for the same subject company, depending on the method selected under the income and market approaches for the analysis. This chapter also discusses tax-affecting the benefit stream of pass-through entities, a subject that continues to be studied by the valuation community and the courts.

Learning Objectives

By the end of this chapter, readers should be able to:

• Differentiate between forecasts and projections and determine which should be used to develop future benefit streams.
• Differentiate between the equity and MVIC economic benefit streams.
• Select the appropriate type of economic benefit ...