Profits Method Flashcards
What is the profits method used for?
Valuing specialist trading properties or entities where there is a monopoly position.
The method is used where the value of the property depends on what?
Profitability of its business (not physical building or location)
What type of properties can it be used for?
Pubs Petrol Stations Hotels Guest houses Children's nurseries Care homes
What is required to value a property using this method?
Accurate and audited accounts for 3 years.
What type of accounts are superior to management accounts?
Audited
What should you use for a new business where no accounts are available?
Estimates or business plan
What is the simple methodology for the method?
Annual turnover
less costs/purchases
= Gross Profit
Less working expenses
= Unadjusted net profit
Capitalised at appropriated yield to achieve cap[ital value
How should the value be cross checked?
Comparable method if possible.
What is the EBITDA
Earnings before interest, taxation, depreciation and amortisation (adjusted net profit)
What is FMT?
Fair maintainable trade - reflecting the hypothetical reasonably efficient operator’s costs of running the business based upon a hypothetical operator.
What is the relevant RICS guidance note?
Valuation Practice Guidance Note 4: Valuation of individual trade related properties
What two types of property have a separate guidance note?
Pubs and Hotels
