In addition, a consistent growth history in excess of inflation should be considered in choosing the capitalization rate. The higher the rate of growth, the lower the capitalization rate, and the higher the firm value. A history of growth from mergers and acquisitions may result in an increase or decrease in the value of a firm. Such an adjustment will increase normalized earnings and the value of the firm. However, the unpaid obligations represent a non- operating liability, and the present value of the future obligations, whether they are on or off balance sheet amounts should reduce the value of the firm.
Mergers present a different consideration.
If there was an equitable agreement reached between the merging parties, the value of the firm may increase representing the increased potential of the greater firm to grow. The individual owner values would be expected to remain unchanged until the actual growth is achieved. Firm Identity A CPA practice is a personal service business, and growth in services rendered is normally due to the personal efforts of the individual owners of the firm. However, some firms experience growth through name recognition. To the extent that the firm possesses this trait, it is a factor that must be considered in the valuation.