Estimating the Earnings Stream

C

When valuing a company, one of the critical steps is to estimate the earnings stream. The earnings stream is an estimate of the company's future profitability and is an essential factor in determining the company's value.

To estimate the earnings stream, several steps are involved, including:

A. Estimating corporate sales: This step involves estimating the company's revenue by examining past sales performance, industry trends, market conditions, and the company's competitive position.

B. Estimating corporate earnings before taxes: This step involves calculating the company's earnings before tax by subtracting all the operating expenses, such as salaries, rent, and other costs, from the estimated revenue.

C. Estimating corporate liabilities and assets: This step involves estimating the company's financial position by evaluating its assets, such as inventory, equipment, and property, and its liabilities, such as debts and accounts payable.

D. Estimating corporate earnings after taxes: This step involves calculating the company's earnings after taxes by subtracting the estimated taxes from the earnings before taxes.

Therefore, the correct answer to the question is C, estimating corporate liabilities and assets, as it is not directly related to estimating the earnings stream. However, it is a crucial step in determining the company's overall value and financial health.