Chapter 5
Income Approach Valuation Process Flowchart
INTRODUCTION
Generally, the income approach is the most often used approach in valuing operating companies. It is the most direct approach in that it is based on the actual and/or anticipated earnings and cash flow parameters of a company, which are then directly correlated to a discount or capitalization rate that reflects the risk in achieving those earnings and cash flows. This is not to say it does not contain numerous assumptions. It does. However, the data used to prepare this method continue to evolve and allow for more supportable valuations.
The purpose of the Income Approach Valuation Process Flowchart is to allow valuation analysts to follow a more structured process to apply the income approach properly. It also provides less experienced analysts with a road map to follow in selecting and supporting the various methods and assumptions used in the income approach. This guide will also provide all analysts with good documentation of the reasons the approach was applied in the manner ultimately determined.
The Income Approach Valuation Process Flowchart is presented in the form of an outline to allow easy adoption to a checklist for compliance. It also follows a series of questions to answer and concepts to consider when preparing the income approach. The cost of capital topic is not part of this guide.
INCOME APPROACH VALUATION PROCESS FLOWCHART
Business Name:
Date of Valuation:
Disclaimer Excluding Any Warranties: ...
