1. Average Profit Method

This method determines goodwill based on the average historical profits of the business over a defined period, reflecting its sustainable earning capacity.

Formula:
Goodwill = Average Profit × Number of Years’ Purchase

• Average Profit = Total profits over the selected period ÷ Number of years

• Number of Years’ Purchase = A professional judgment factor reflecting future earnings potential

This method is appropriate where earnings are stable and predictable.

2. Weighted Average Profit Method

This method assigns greater weight to recent profits to capture trends in business performance, particularly where profits show growth or decline.

Formula:
Goodwill = Weighted Average Profit × Number of Years’ Purchase

Weighted Average Profit = Σ (Profit × Weight) ÷ Σ Weights

This approach provides a more realistic measure of maintainable earnings when recent performance is more representative of future results.

3. Super Profit Method

This method measures goodwill based on excess earnings generated above a normal return for the industry.

Formula:
Goodwill = Super Profit × Number of Years’ Purchase

• Super Profit = Actual Average Profit – Normal Profit

• Normal Profit = Capital Employed × Normal Rate of Return

This method highlights the competitive advantage of the business relative to industry benchmarks.

4. Capitalization of Average Profit Method

Under this approach, the average profit is capitalized at the normal rate of return to determine the total business value, from which actual capital employed is deducted to compute goodwill.

Formula:
Goodwill = Capitalized Average Profit – Actual Capital Employed

Capitalized Average Profit = (Average Profit × 100) ÷ Normal Rate of Return

This method is suitable where long-term earnings stability can be reasonably assumed.

5. Capitalization of Super Profit Method

This method directly capitalizes super profits at the normal rate of return to derive goodwill value.

Formula:
Goodwill = Super Profit × (100 ÷ Normal Rate of Return)

This approach is particularly effective where excess earnings are expected to continue over the foreseeable future.

6. Residual Method

Goodwill is calculated as the difference between the purchase consideration and the fair value of identifiable net assets acquired in a business combination.

This method is commonly applied in mergers and acquisitions under IFRS 3.

7. Income-Based Approaches (Discounted Cash Flow – DCF)

Goodwill is estimated based on the present value of future economic benefits attributable to intangible advantages, using risk-adjusted discount rates and forward-looking cash flow projections.

8. Market and Transaction Benchmarking (Where Applicable)

Where reliable comparable market or transaction data is available, SRCA incorporates benchmarking analysis to validate goodwill assumptions and ensure market consistency.

Method Selection Criteria

SRCA selects the most appropriate goodwill valuation methodology based on:

• Industry context and business characteristics

• Availability, quality, and reliability of financial and market data

• Purpose of valuation (M&A, financial reporting, taxation, dispute resolution)

• Transaction structure and stakeholder requirements

• Applicable accounting, regulatory, and compliance frameworks

This structured and disciplined approach ensures that SRCA’s goodwill valuations are technically sound, commercially realistic, and defensible before auditors, regulators, investors, and courts.