Download Statement on Standards for Valuation Services

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Income Approach. Two frequently used valuation methods under the income approach include the
capitalization of benefits method (for example, earnings or cash flows) and the discounted
future benefits method (for example, earnings or cash flows). When applying these methods, the
valuation analyst should consider a variety of factors, including but not limited to, the following:
a. Capitalization of benefits (for example, earnings or cash flows) method. The valuation
analyst should consider the following:
i. Normalization adjustments
ii. Nonrecurring revenue and expense items
iii.
Taxes
iv. Capital structure and financing costs
v. Appropriate capital investments
vi. Noncash items
vii. Qualitative judgments for risks used to compute discount and capitalization
rates
viii. Expected changes (growth or decline) in future benefits (for example, earnings
or cash flows)
b. Discounted future benefits method (for example, earnings or cash flows). In addition to the
items in item a, the valuation analyst should consider the following:
i. Forecast or projection assumptions
ii. Forecast or projected earnings or cash flows
iii.
Terminal value
c. For an intangible asset, the valuation analyst should also consider, when relevant, the
following:
i. Remaining useful life
ii. Current and anticipated future use of the intangible asset
iii.
Rights attributable to the intangible asset
iv. Position of intangible asset in its life cycle
v. Appropriate discount rate for the intangible asset
vi. Appropriate capital or contributory asset charge, if any
vii. Research and development or marketing expense needed to support the
intangible asset in its existing state
viii. Allocation of income (for example, incremental income, residual income, or
profit split income) to intangible asset
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