WHAT IS GOING ON???? The income approach is clearly not understood, ass covering is just that...what did I miss? 3.5 million shares traded and we are down over 40 cents from the high?? The risk of this stock is built into the income approach valuation.... Are we just pawns? It says the company is worth 15 dollars a share today and they used a 50% discount rate higher than normal, this is a very conservative estimate. Are we lambs being led to slaughter? Thats what it feels like. Arggghhhh sorry for venting but I am sure I am in good company.
Income approach[edit]
The income approach relies upon the economic principle of expectation: the value of business is based on the expected economic benefit and level of risk associated with the investment. Income based valuation methods determine fair market value by dividing the benefit stream generated by the subject or target company times a discount or capitalization rate. The discount or capitalization rate converts the stream of benefits into present value. There are several different income methods, including capitalization of earnings or cash flows, discounted future cash flows ("DCF"), and the excess earnings method (which is a hybrid of asset and income approaches). The result of a value calculation under the income approach is generally the fair market value of a controlling, marketable interest in the subject company, since the entire benefit stream of the subject company is most often valued, and the capitalization and discount rates are derived from statistics concerning public companies. IRS Revenue Ruling 59-60 states that earnings are preeminent for the valuation of closely held operating companies.
However, income valuation methods can also be used to establish the value of a severable business asset as long as an income steam can be attributed to it. An example is licensable intellectual property whose value needs to be established to arrive at a supportable royalty structure.
