Calculating Business Value Using the Excess Earnings Method

Nov 29, 2025

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Learn the steps involved in valuing a business for sale using the Excess Earnings method. Step 4 involves computing the Extra Earning Power (EEP) by subtracting Total Opportunity Costs from Projected Net Earnings. In this case, EEP equals $8,922. Step 5 involves estimating the value of intangibles, such as goodwill, by multiplying the EEP by the Years of Profit figure. Based on the given example, the value of intangibles would be $26,766.

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Calculating Business Value Using the Excess Earnings Method

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Buying An Existing Business For Sale
Excess Earnings Method (Continued) Step 4: Compute extra earning power (EEP): EEP = Projected Net Earnings - Total Opportunity Costs = $74,000 - 65,078 = $8,922 Step 5: Estimate the value of the intangibles ("goodwill"): Intangibles = Extra Earning Power x "Years of Profit" Figure* = 8,922 x 3 = $26,766

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