Profits Method Of Valuation

Question 1

When should you use the profits method of valuation

Answer 1

Used for trade related property, where there is a monopoly position

Used when the value of the property depends upon the profitability of the business and its trading potential

Question 2

Give some examples of properties that the profits method should be used to value

Answer 2

Pubs
Petrol stations
Hotels
Guest houses
Nurseries
Leisure
Healthcare and care homes

Question 3

What must you get from the occupying business before undertaking the profits method?

Answer 3

Last 3 years of audited accounts

Audited accounts are superior to management accounts

Question 4

If you are using the profits method to value a property and the occupier is a new business, what should you use?

Answer 4

Business plan instead of audited accounts

Question 5

What is the simple methodology for the profits method of valuation?

Answer 5

Annual turnover less costs (profit)

Less reasonable working expenses (unadjusted net profit)

Less operators remuneration
(Adjusted net profit known as the fair maintainable operating profit) (also known as EBITDA)

Capitalise at a yield and cross check with comparable sales evidence if possible

Question 6

What does EBITDA stand for?

Answer 6

Earnings before interest tax depreciation and amortisation