The Internal Revenue Service (“IRS”) issued a Revenue Ruling in 1959 that to this day serves as the benchmark guide for valuation professionals to follow in their work. The revenue ruling was the 60th revenue ruling made in 1959. Thus, the ruling became known as Revenue Ruling 59-60.
The elements we examine during valuations adhere to the tenets outlined in IRS Revenue Ruling 59-60. This landmark ruling recommends that the following factors be examined in conducting a closely held business valuation:
- The nature of the business and the history of the enterprise from its inception;
- The economic outlook in general and the condition and outlook of the specific industry in particular;
- The book value of the stock and the financial condition of the business;
- The earning capacity of the company;
- The dividend-paying capacity of the company;
- Whether or not the enterprise has goodwill or other intangible value;
- Prior sales of the stock and the size of the block of stock to be valued; and
- The market price of stocks of corporations engaged in the same or a similar line of business having their stocks actively traded on an exchange or over-the-counter market.
It is amazing that this benchmark ruling is just as relevant today as it was in 1959. It also provides a great framework for business owners to evaluate the overall health of your business enterprise. Van Amburgh Valuation Associates Inc. stands ready to help you in this evaluation. Please call 972-723-9500 (Texas) or 919-964-8423 (North Carolina) if we can help.