Capitalization of Earnings Method Calculator

Capitalization of Earnings Method Calculator calculator can be used to determine the value of an asset or business based on its expected future earnings. This method is particularly useful for valuing businesses that generate stable and predictable cash flows.

Input Parameters

Calculation Results

Calculation Formula

Value = Annual Earnings × (1 + Growth Rate) ÷ (Capitalization Rate - Growth Rate)

Where:
Annual Earnings: The expected earnings of the business or asset for a full year.
Growth Rate: The expected annual growth rate of the earnings.
Capitalization Rate: The rate used to discount future earnings to their present value.

Result

Value: $0.00

Capitalization of Earnings Method Calculator Calculator Usage Guide

Learn how to use the Capitalization of Earnings Method Calculator calculator and its working principles

How to Use the Calculator

  1. Enter the Annual Earnings of the business or asset. This should be the expected earnings for a full year.
  2. Enter the Growth Rate of the earnings. This is the expected annual growth rate of the earnings.
  3. Enter the Capitalization Rate. This rate is used to discount future earnings to their present value.
  4. Click the Calculate button to compute the value of the business or asset.
  5. The result will be displayed in the Result section.

Principle of the Capitalization of Earnings Method

The Capitalization of Earnings Method is based on the principle that the value of an asset or business is the present value of its expected future earnings. This method is particularly useful for valuing businesses that generate stable and predictable cash flows.

The formula used in this calculator is:

Value = Annual Earnings × (1 + Growth Rate) ÷ (Capitalization Rate - Growth Rate)

This formula takes into account the expected future earnings, the growth rate of those earnings, and the rate at which future earnings are discounted to their present value.