What is a common factor in valuing closely held corporations?

In valuing closely held corporations, evaluating earnings and benefits is a crucial factor because these businesses often do not have publicly traded stock, which makes market quotations less relevant. Instead, analysts focus on the company's ability to generate income, which reflects its overall profitability and future growth potential. Earnings provide insight into the financial health of the business, while benefits can encompass various financial elements such as employee compensation, potential dividends, and other perks that contribute to the evaluation of the owner's and employees' value within the company.

By focusing on earnings and benefits, appraisers can derive a more accurate valuation based on the company's operational performance rather than solely on its physical assets or external market conditions, which might not adequately represent the business's true worth. This helps potential investors or buyers understand the value being generated and the sustainability of that value over time. As such, evaluating earnings and benefits is aligned with the unique characteristics of closely held corporations.