Income Approach to Value
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This chapter examines the income approach, an approach based on the economic principle of anticipation of future benefits. Under the income approach, valuation of human capital requires analysis of the expected net income stream directly attributable to the workforce. This chapter reviews several techniques for deriving the present value of the anticipated economic benefits of human capital. Economic benefits are measured as the value of worker outputs contributed to the firm, or alternatively, via employee earnings as a proxy of the value employees contribute to the organization, and as the excess earnings remaining after allocating an appropriate amount of earnings to all other assets of the business. Also discussed are the conceptual logic of the income approach and its contrast with the cost approach.