Treasury Method Details
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 their value by a rate of return.
- Determine the excess earnings by subtracting this return from the business earnings.
- Calculate business goodwill by capitalizing the excess earnings.
- Compute the total business value as the sum of goodwill and net tangible asset value.