After studying this chapter you should be able to:
Understand the nature and sources of goodwill.
Appreciate the need for valuing goodwill.
Understand the terms: future maintainable profit; normal rate of return; capital employed and average capital employed.
Determine average capital employed under different methods.
Value goodwill by average profits method; super profit method and capitalization method.
Appreciate the need for valuation of shares.
Value shares by intrinsic value method; yield method and fair value method.
Understand “minority” and “majority” holdings.
Explain the meaning of certain key terms associated with “Valuation of Goodwill and Shares”.