Profits Method

Question 1

When is the Profits Method of Valuation Used and How does it Work?

Answer 1

Used to value a property when the value depends on the trading potential of the business

Used for pubs, stations and hotels.

Applies an all-risk YP (years’ purchase)/multiplier to the fair maintainable operating profit to provide a capital value.

Question 2

How Many Years of Audited Accounts would you ideally like to see for a Profits Method Valuation?

Answer 2

3

Question 3

describe the Profits methodology

Answer 3

Annual Turnover (income received)
* Less costs and purchases = Gross Profit
* Less reasonable working expenses = Unadjusted Net Profit
* Less operator remuneration = Fair Maintainable Operating Profit (FMOP)
Capitalised at appropriate yield to achieve MV
Cross check with comparables

Question 4

What does EBITDA stand for?

Answer 4

Earnings before income taxation, depreciation and amortisation.