09 Aug Capitalization of Earnings for Business Valuation
The following are scenarios where utilizing the Capitalization of Earnings method for business valuation would be highly effective.
- Earnings capacity contributes significantly to the company’s worth.·
- Enough reliable ‘data is available to reasonably estimate expected normal earnings.
- Current earnings levels a, e expected to approximate future earnings.
- Earnings for the.subject company are significantly positive (that is, neither negative nor marginally positive).·
- Expected growth rares are modest and predictable.
- If valuing a controlling interest owners’ benefits can be reasonably estimated. (Such benefits include compensation, perquisites, personal expenses paid by company.)·
- The company has significant intangible asset value.
- The company adds significant value to its products or services through labor or intangible assets. .
- Earnings are considered a better indicator of value than net cash now.