Treasury Method Details

The Treasury Method has been endorsed by the US Treasury Department (Appeals and Review Memorandum No 34), the IRS (Revenue Ruling 68-609), and International Valuation Standards (IVS). Here is how it works:

• Start with the business earnings.
• Calculate the net tangible asset value by subtracting the current liabilities from the adjusted business tangible assets.
• Calculate the return on net tangible assets: multiply the net tangible asset value by a rate of return.
• Determine the excess earnings by subtracting the return on net tangible assets from the business earnings.
• Calculate business goodwill by capitalizing the excess earnings.
• Compute the total business value as the sum of business goodwill and net tangible asset value.