DCF vs Maintainable Earnings: Which Method Courts Prefer

UK courts do not mandate one valuation method for all businesses. Expert witnesses must select the method most appropriate to the company, purpose of valuation, and available data - then justify that choice in their report.

Disputes between experts often arise not from which method category is used, but from assumptions within that method: growth rates and WACC in DCF; normalised earnings and multiple selection in capitalisation of earnings.

DCF suits growing companies with reliable forecasts - technology, SaaS, and professional services with contracted recurring revenue. It is forward-looking and captures growth potential but is highly sensitive to assumptions, making it contentious in adversarial litigation.

WACC calculation requires defensible cost of equity (often CAPM-based), cost of debt, and capital structure. Terminal value using Gordon Growth or exit multiples is frequently the largest disputed component.

Established SMEs with stable historic earnings are often valued using normalised EBIT or EBITDA multiplied by a sector-appropriate multiple. The method is market-referenced and intuitive for courts, but multiple selection remains subjective.

Normalisation for owner remuneration, one-off costs, and related party transactions is critical. Experts should show adjusted earnings bridges clearly in reports.

Judges may prefer simpler methods where assumptions in DCF are speculative. Conversely, courts accept DCF where forecasts are supported by contracts and historic performance. Experts should present sensitivity analysis for key assumptions.

See our valuation methods page for step-by-step methodology tables and fair value versus fair market value in S994 contexts.