Earning method - bases of valuation, Finance Basics

Earning method - Bases of Valuation

The business is valued according to the net stream of income it is expected to create over its lifetime.

Determination of maintainable earnings

a) The first step in arriving at earning based valuation is for estimate the future maintainable earnings and if the situation during the future is expected to be same to those in the past, it is then prudent to face the forecast on the historical figures.  Conditions do change however and like as changes in revenue and cost.  Hence, a detailed examination of profits of the most current loss and profit account will be essential to estimate the effects of the changes.  Though the information known will depend upon the nature of the business the common principles to bear in mind must comprise the trend of sales and gross profit.

b) Analysis of sales and gross profit percentage along with:

i) Customer type

ii) Geographical areas

iii) Departments

iv) Product lines

c) Costs as a percentage of total sales.

d) Necessity of expenditure in the business e.g. excessive remuneration on expenses charged.

e) Unusual fluctuations in the ratios.

f) Inclusion of all costs.

g) Effects of external situation like recession or inflation.

Though, there is several type of arriving at the value based on the earnings valuation as:

  • Price earnings ratio valuation
  • Earnings yield valuation
  • Super profits valuation
Posted Date: 1/31/2013 1:43:35 AM | Location : United States

Related Discussions:- Earning method - bases of valuation, Assignment Help, Ask Question on Earning method - bases of valuation, Get Answer, Expert's Help, Earning method - bases of valuation Discussions

Write discussion on Earning method - bases of valuation
Your posts are moderated
Related Questions
What are the Advantages of Listing on Stock Exchange (i) Detailed information about company is available. (ii) Information increases activity of purchase and sale of the sec

Find the costs of financing for two schedules of monthly payments on a 25-year mortgage. The cash value of the house today is $500,000. You are paying monthly at a fixed rate of 6%

Prepare Journal and Adjusting Entries I need assignment help on topic Prepare Journal and Adjusting Entries. Can you please suggest me the answer. The following two events o

Constant DPS plus Extra or Surplus 1. Beneath this policy a constant DPS is paid every year. Nonetheless extra dividends are paid in years of supernormal earnings. 2. It prov

EOQ Assumptions The basic EOQ model creates the following supposition as: i) The demand is identified and constant over the year ii) The ordering cost is con

Define New Issue Market New Issue Market OR Primary Market New issue market is the segment in which new issues are made.

Private Limited Companies These are NOT permitted to advertise their shares so like to attract public money and so that they sell their shares privately as recognized as priva

evaluate the source of finance for a business project

Question 1: Consider a 5-year $10,000 endowment assurance issued to a select life aged 30 under the following bonus schemes:- (a) Simple reversionary bonuses of 5% p.a., 6%i

Cash Management Techniques The basic strategies that must be employed via the business firm in managing its cash are as: i) To pay account payables as behind as possible wi