The practitioner's method (Praktikermethode in German, méthode des praticiens in French) is defined in Swiss Circular 28 on wealth tax. It calculates business value as a weighted average of two components: the capitalized earnings value (Ertragswert — normalized annual earnings divided by a capitalization rate, typically 7–10%) and the net asset value (Substanzwert — the restated fair value of net assets). The standard Swiss weighting is 2× earnings value plus 1× asset value, divided by 3.
The method was designed for tax and inheritance purposes, not transaction pricing. It tends to produce conservative valuations because the capitalization rates are administratively set rather than market-derived. For a growth business with strong intangibles (brand, software, customer relationships), the practitioner's method will typically undervalue the business relative to what a strategic buyer would pay.
In practice, Swiss M&A advisors use the practitioner's method as a floor reference — particularly when dealing with family succession, estate planning, or minority buyouts where fiscal value matters. For a full sale process, market multiples anchored to Argos data will almost always yield a higher enterprise value and should be the primary pricing reference in any competitive process.
Worked example
Normalized earnings: CHF 800k. Capitalization rate: 9%. Earnings value: CHF 8.9m. Net asset value (restated): CHF 3m. Practitioner's value: (2 × 8.9m + 3m) / 3 = CHF 6.9m. Market multiple approach at 9× EBITDA: CHF 7.2m. The two methods converge here — in growth businesses, the gap is typically much larger.
Frequently asked questions
When is the practitioner's method used in Switzerland?
Primarily for wealth tax declarations, gift and inheritance tax, minority stake buyouts, divorce proceedings, and arm's-length transactions between related parties. It sets the fiscal reference value. For a third-party sale process, buyers will negotiate on market multiples, not fiscal value.
How does the practitioner's method differ from a DCF?
A DCF projects future cash flows explicitly and discounts them at a market-derived WACC. The practitioner's method capitalizes a normalized annual earnings figure at an administratively set rate. DCF captures growth and cash conversion dynamically; the practitioner's method assumes steady-state earnings and ignores future growth.
Can I use the practitioner's method as a negotiating reference?
Only as a floor. If your practitioner's value is CHF 7m and the market multiple approach gives CHF 12m, presenting CHF 7m to buyers is commercially irrational. The practitioner's method is useful for setting minimum acceptable price in a family succession or for arguing against a low offer from a minority buyer.