For example, if you a simple average of 5 year of either income or cash flow of: year 1 100 year2 100 year 3 100 year 4 100 year 5 100 total 500 average 100 cap rate 0.2 value 500 Now you go to the balance sheet as of the valuation date and have a cash balance of $500 and the industry working capital benchmark is $200, is it fair to add $300 to the value of the business? That is really the question. In practice, particularly matrimonial valuations, some practitioners would opine, if the owner sells the business they would realize $500 in value plus $300 in excess working capital for a total value of $800. Remember the value included the $300 ($100 each year), possibly not distributed cash flow/earnings, is that really value?
For example, if you a simple average of 5 year of either income or cash flow of:
year 1 100
year2 100
year 3 100
year 4 100
year 5 100
total 500
average 100
cap rate 0.2
value 500
Now you go to the balance sheet as of the valuation date and have a cash balance of $500 and the industry working capital benchmark is $200, is it fair to add $300 to the value of the business? That is really the question. In practice, particularly matrimonial valuations, some practitioners would opine, if the owner sells the business they would realize $500 in value plus $300 in excess working capital for a total value of $800.
Remember the value included the $300 ($100 each year), possibly not distributed cash flow/earnings, is that really value?
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