Determining the value of future earnings of a company is achieved by using a method of capitalization, as well as the more complex, but also more accurate - discounting flows.
you look more closely at the first of them - the income capitalization approach.As a rule, it is used in situations where the firm's revenues from the exploitation of those or other objects to be evaluated consistently stable.In this sense, this method is the opposite with respect to the method of discounting, as the latter is applied in cases of instability of income in the framework of this projected time.In both cases, the most difficult issue in favor revenue forecasting at some future period.If you are using the income capitalization approach to the analysis of the income is received in the first year (with the proviso that it is assumed to maintain the same return in the following years).
Together, both methods form the basis of the income approach, which allows you to accurately reflect investor perceptions about the facility, which is estimated, and perhaps in the future will serve as a source of income.This approach is interconnected with other - comparative and costly, and some of the elements of procedure and incorporated into the analysis algorithm profitable.The most sensitive lack of such analysis appears that it is based on forward-looking assumptions and, in the case of the unstable economic situation, can show false results.
In the most general form of the capitalization of income is a process, in which the magnitude and intensity of the income stream is transformed into cost index (C).It is determined by dividing or, or multiplying the flow (D) in the multiplier (M), which is in economic science is still referred to as capitalization ratio (K).The general formula of protsessatakova:
C = D / M (K), or C = L x M K).
income capitalization method is applied as follows.First the estimated kind of analogue of the object, as a rule, the basis of this selection are the statistics for the commission of this type of transactions in the approximate period.That is the success of the calculation depends on whether the selected analogue will adequately reflect the characteristics of the real object of evaluation.Then, the leverage ratio is calculated by the formula:
R = Y / V
in which R - the general factor, Y - settlement (proposed for analogue) net income, V - the estimated cost of selling analogue.Next, the already appraised cost of the real object, which uses the formula:
V = Y / R.
use the method of income capitalization may, in cases where it is necessary to assess the profitability of other assets, taking into account the influence of other factors.For example, a widely used method of capitalization net income.It is most effective in predicting a steady income with a high degree of probability.Another example is the study of what will be the return on capital, the direct capitalization method.Its main feature is that, in determining the capitalization rate used information on prices and incomes, which, by itself, causes a change in the calculation formula.It takes the following form:
K = V / Y.
The fundamental principles of this method is widely used in the calculations of potential dividends effectiveness of multiples construction is possible model projects growth, studies of debt and equity capital, land, real estate and fixed assets.A modified version of the method acts as a technique Ellwood.
