Earnings valuation approach is a business valuation approach which centers on estimating the amount of potential income that may be produced by the business in the next year.

• A. It focuses on asset replacement costs.
• B. It centers on estimating future income for the next year.
• C. It uses current market price to determine value.
• D. It evaluates goodwill and intangible assets.

Answer: (B)

The earnings valuation approach ties value to the business's expected profits for the coming year. It looks at how much income the business is anticipated to generate next year and uses that projection as the main driver of value, often applying capitalization or discounting to convert those earnings into a present value. This forward-looking, income-based method contrasts with asset-focused or market-based ideas. For asset replacement costs, you'd be estimating what it would cost to replace tangible assets, which is the cost approach. Relying on current market price reflects a market-based approach, comparing the business to others and what buyers are paying now, not projecting future earnings. Evaluating goodwill and intangible assets deals with the value of non-tangible items, which is more about asset or balance-sheet valuation than forward earnings. Therefore, estimating future income for the next year best fits the earnings valuation approach.