For example, if you a simple average of 5 year of either income or cash flow of: year 1 100 year2 100 year 3 100 year 4 100 year 5 100 total 500 average 100 cap rate 0.2 value 500

Now you go to the balance sheet as of the valuation date and have a cash balance of $500 and the industry working capital benchmark is $200, is it fair to add $300 to the value of the business? That is really the question. In practice, particularly matrimonial valuations, some practitioners would opine, if the owner sells the business they would realize $500 in value plus $300 in excess working capital for a total value of $800.

Remember the value included the $300 ($100 each year), possibly not distributed cash flow/earnings, is that really value?