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explain going-concern value factors: 1- extra earning power 2-intangible assets 3- value of future investment

explain going-concern value factors:

1- extra earning power
2-intangible assets
3- value of future investment
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Answer #1

1. Extra Earning Power: It refers to what a business earn extra compared to what is the benchmark. This parameter generally comes into picture during Mergers and Acquisition and to calculate synergies

Excess Earnings = (Future additional Earnings - Normal Earnings) / Discount Rate(WACC)

2. Intangible Assets: It is an asset that cannot be seen in a physical form but has high value for the company. For example Intellectual property, trademark, goodwill etc are intangible assets. Some of the intangible assets can be even recorded in Balance sheet

3. Value of Future investment: The value of a firm depends on the future cashflows that the firm can produce by quality investments and since business is a growing concern entity these potentials are factored in while valuing a business

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