Beginning Business Valuation Barry Goodman CFA, ASA, CPA/ABV, CBA, CFP Advanced Valuation Analytics, Ltd.

Capitalization Of Cash Flow Method Estimate the capitalization rate. Estimate the cash flow capacity. Divide the cash flow capacity by the capitalization rate.

Capitalization Rate Factor, expressed in %, used to convert anticipated benefits into a current value Considers interest rates, rates of return expected by the market, and risk of the anticipated benefits

Cash Flow Capacity The company’s ability to produce profit Looks at historical profit – not anticipated future profit Estimation Methods Most recent year Mean or weighted average Another way to estimate cash flow capacity- Projected Year

Gradual Increase

Erratic History

Hockey Stick

Sources of Market Data Publicly-traded stocks Iba data base Pratt’s stats Done deals Zweig’s valuation survey Other specialized sources

Company Results Net income EBITDA Cash flow Owner’s discretionary cash flow Revenue

Discounts/Premiums