Capitalized Excess Earnings
Asset-based Business Valuation Method
What It Means
Capitalized Excess Earnings method determines the business value by summing the net tangible value of the business assets with the capitalized value of the "excess" earnings. A typical procedure to establish the business value with the method is:
Capitalized Excess Earnings method is often called the Treasury Method because it was first introduced by the US Treasury Department in the 1920's to value business goodwill. It is described in the Appeals and Review Memorandum Number 34. Widely adopted by the professional appraisal community, this method has been further clarified in the US Internal Revenue Service Ruling 68-609.
Business Value = Assets + Business Goodwill
ValuAdder uses this classical business valuation method on the Business Goodwill Tab to determine the value of business goodwill and total business value.
Valuing a Business by Excess Earnings Method
Business Valuation Tools