Important factors to consider in making tax adjustments to pass-through income Damodaran recently wrote about the potential devaluation of dividend-paying stocks if the preferred dividend tax rate were to climb back up to the ordinary rate. This could inspire valuation experts to make a tax adjustment reducing untaxed Pass-Through Entity (PTE) income to equate it with corporately taxed income that qualifies for tax preference at the shareholder level. Before making this tax adjustment, the valuation expert should consider several factors.
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Investopedia weighs in on the pros and cons of varying approaches: Business valuation is never straightforward – for any company. For startups with little or no revenue or profits and less-than-certain futures, the job of assigning a valuation is particularly tricky. For mature, publicly listed businesses with steady revenues and earnings, normally it’s a matter of valuing them as a multiple of their earnings before interest, taxes, depreciation and amortization (EBITDA), or based on other industry specific multiples. But it’s a lot harder to value a new venture that’s not publicly-listed and may be years away from sales. TUTORIAL: Valuing Employee Stock Options…