Income Statement Discussion The next part of the financial analysis is more dynamic as it requires the valuator to form a definitive opinion on the Company’s earnings capacity based in part on the historical performance of the Company, the economic and industry analysis conducted in Section 3.0 Economic and Industry Review as well as any other information and factors discovered that the valuator believes have a bearing on the future of the Company. The perspective on future earnings is especially important. Future earnings (sometimes used synonymously with dividend‐paying capacity, although somewhat different) area critical component in the development of the valuation opinion and are specifically referred to in Revenue Ruling 59‐60. Revenue Ruling 59‐60 states that Valuation … is, in essence, a prophecy as to the future and must be based on facts available at the required date of appraisal and continues primary consideration should be given to the dividend‐paying capacity of the company rather than to dividends actually paid in the past Dividend‐paying capacity begins with the earnings capacity of the Company. In essence, the valuator must identify the cash flow available to all of the shareholders in the Company. The future context holds much weight when the subject company being considered is to be valued as a going concern (defined in Section 2.3 Going Concern Value. It is on this basis that the valuator treats this subject with care and a critical review. Based on the normalization adjustments, a common size Income statement was prepared for the past five years (Including the estimate for the fiscal year ending June 30, 2006). The common size Income statement presented in following table allows the valuator to compare and contrast the Company to other businesses within the industry based on similar attributes such as sales and assets.
