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• Noncash items

• Qualitative judgments for risks used to compute discount and capitalization rates

In addition to the items listed previously, additional key points to consider under the discounted future
earnings method are as follows:

• Forecast and projection assumptions

• Forecast and projected earnings or cash flows

• Terminal value

When valuing an intangible asset under the income-based approach, the CPA should consider the fol-
lowing:

• Remaining useful life

• Current and anticipated future use of the intangible asset

• Rights attributable to the intangible asset

• Position of the intangible asset in its life cycle

• Appropriate discount rate

• Appropriate capital or contributory asset charge

• Research and development or marketing expenses needed to support the intangible asset

• Allocation of incremental, residual, or profit split income to the intangible asset

• If any tax amortization benefit should be included in the analysis

• Market royalties

Market-Based Approach

Two methods under the market-based approach of valuation are the guideline public company method
and the merger and acquisition method.

The guideline public company method uses companies with shares traded in the public securities mar-
kets that provide a reasonable basis for comparison to the characteristics of the subject equity. Ideal
guideline companies are those in the same industry that have the same characteristics, such as markets,
products, growth, cyclical variability, and other relevant factors. Comparisons are made through the use
of valuation ratios (multiples). Typical multiples are revenues, net income, earnings before interest and
taxes, or EBIT, and earnings before interest, taxes, depreciation, and amortization, or EBITDA. Key
points to consider under the guideline public company method are as follows:

• The selection of the underlying data used to compute the valuation ratios.

© 2020 Association of International Certified Professional Accountants 45