The With-and-Without Method (WWM), also called the differential cash flow method, is an Income Approach technique for valuing intangible assets. It compares two forecasts of the same business: one with the subject asset in place, and one without it. The present value of the difference in after-tax cash flows is the value of the asset.
When to Use the With-and-Without Method
- Non-compete agreements acquired in business combinations, the most common application
- Licences, permits and franchise rights that would take time and cost to obtain again
- Distribution, supply and customer contracts whose absence would delay revenue
- Customer relationships that are not the primary asset, where MPEEM would double count
- Measuring economic obsolescence or business interruption losses
How the Method Works
- Build the "with" scenario: the business's projected cash flows with the asset in place, which is usually management's base forecast.
- Build the "without" scenario: the same business without the asset, reflecting lost revenue, a ramp-up period to rebuild or replace the asset, extra costs and competitive effects.
- Calculate the differential cash flows: "with" minus "without", after tax, in each period.
- Apply probabilities where relevant: for a non-compete, the likelihood that the restricted parties would actually compete, and their ability to do so.
- Discount the differential cash flows at an appropriate rate, and add the tax amortisation benefit where applicable.
- Test sensitivity to the ramp-up period, the revenue impact and the probability of competition.
Strengths and Limitations
Strengths: the method directly measures what the business would lose without the asset, which makes it intuitive and well suited to protective and enabling assets. Limitations: the "without" scenario is hypothetical and requires careful, well-supported judgement about recovery time and competitive behaviour.
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