The use of the income approach to assess the value of the enterprise, its application must have three prerequisites:
1. the enterprise's expected future earnings can be predicted and can be measured in monetary terms;
2. the enterprise's expected earnings of the risks borne by the enterprise can also be predicted and can be measured in monetary terms;
3. the enterprise's expected years of profitability can be predicted.
Basic steps for assessing enterprise value by income approach:
1. Research and analyze the historical operating performance of the enterprise;
2. Analyze the assets and liabilities of the enterprise according to its business operation, and distinguish the assets and liabilities of the enterprise as of the appraisal reference date into the following categories, and determine the scope of assets and liabilities corresponding to the income forecast:
(1) Main business (1) assets and liabilities of the main business;
(2) assets and liabilities such as foreign investments that are not related to the operating business or assessed separately;
(3) other non-operating assets and liabilities.
3. Analysis of macro factors, industry factors, and individual factors affecting business operations and income distribution;
4. Definition of the caliber of expected income of assets and liabilities included in the scope of the income forecast, and determination of the use of net profit, net cash flow, EBITDA, or other forms of income as the expected income and forecasting thereof;
5. Estimation of income projected liquidation value of the corresponding assets and liabilities at the time of termination of their operations;
6. selecting a discount rate that matches the projected income;
7. substituting the parameters of the income approach into the calculation model to calculate the discounted sum of the income;
8. aggregating the discounted sum of the income with the appraised value of assets and liabilities of categories (2) and (3) that have not been included in the scope of the corresponding assets and liabilities of the income projections Derive the appraised value under the income approach.
It is recommended to hire an appraisal firm to conduct a professional appraisal and issue an appraisal report, which meets the professional requirements and the calculated results are more objective, accurate and authoritative, and at the same time, the results of the report will be communicated to the new shareholders who intend to enter into the shares, so as to obtain the trust and support of the shareholders.