In divorce valuations, no sale exists to measure the price paid for the business, so a residual method is not appropriate when parties with adverse economic interests cannot agree. Many times, the most reasonable method for assigning goodwill value is the “Capitalization of Excess Earnings Method.” This method may be preferred because it measures both property and historic profits.
Extreme care must be taken to “normalize” the historic financial statements, determine risk factors, and determine the industry internal rate of return before attempting the “Excess Earnings” Method.
Should you need business valuation assistance or have questions, please call one of our credentialed professionals at (615) 822-8342 or contact us via email.