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.