Using the Valuation Algorithm

The Benefits of using the algorithm

Allows a potential seller to obtain an indicative goodwill valuation range based on the latest accounts.

OTHER USES FOR THE ALGORITHM

When undertaking a valuation of a company's goodwill, it is unlikely that the previous full year's accounts will have just been completed. In most cases, the valuation will occur up to nine months into the next financial year.

OPTIONS FOR INPUTTING TURNOVER

1. You can use a % increase on last years turnover based on a view of the expected increase in the current year.

2. Alternatively, if several months have passed, you can calculate the percentage increase manually and input that % using the previous year’s turnover as the base

3. If you are near the year’s end and you produce full monthly management accounts, you can utilise these figures by projecting both the turnover and profit to twelve months and using them as the base figures. If doing this you should input growth as zero. (2) to obtain the current goodwill valuation

MONITORING FUTURE PROFITS/PROFITABILITY

1. Using the previous year’s accounts and simply completing the data input, you can project your expected profitability over the next year, by simply selecting the expected or require growth.

2. Alternatively, you can project the data profitability for the current year by undertaking (2) in the previous section.

The algorithm can Improve accuracy in calculating increased turnover; rather than simply multiplying by a fixed %, it makes an allowance for increased costs in relation to increased turnover when calculating the changes in profit.