Different sources quite a lot of attention paid to what the cap rate and how is it calculated.However, the category of "overall capitalization rate" needs some further explanation.
It is calculated by dividing the value of the operating profit in the value of the total sale price of the entire company or produced by the enterprise.This figure includes the value and return of investment, and the value of their yield.Defined by this method it excludes debt - so the assumption is that the company has no long-term debt.This value is then summed with the total market value.This is done as follows: it is assumed that part of long-term debt in favor of equity of the company.After this, the net value generated by an enterprise or by product (calculated according to the values before tax) is added to depreciation, as well as those expenses that the company incurred in the payment of interest.
Long-term debt is added to the value of net worth in assets.Further, according to the same procedure, the value is added to the profit interest accrued on the totality of the amount of the debt.These articles are perfectly permissible exceptions (deductions), and therefore does not appear sufficient, and the more binding basis for return on investment.That eventually turns out such a general capitalization rate, which reflects the value of the total return (arising due to amortization and depreciation), as well as the value of the total income (including interest) on the amount of equity capital of the enterprise or company and borrowed funds.
To illustrate how a capitalization rate, the calculation of which is produced in this manner, we assume that the data for the calculation of selected information on.Imagine this technique step by step form.
Step 1. Here is the detection of the total cost of the shares of the enterprise or company.It uses the mean value of the period, which is most revealing in terms of the stability of market factors.This average price of the asset multiplied by the number of ordinary shares that are released into circulation for the selected period.Furthermore, it should consider the possibility of making some corrections in the calculation taking into account the preferred shares.The resulting value is the total value of assets of the enterprise.
Step 2: At this stage of the calculation are added values of long-term debt for a given period to the total price of the ordinary shares.
Step 3. Here, the company's net profit, calculated to the payment of taxes, is added to the value of depreciation.
Step 4. At this stage the amount of net income and depreciation expenses divided by the sum, which is obtained by adding the market value of assets and long-term debt.As a result, we obtain the indicators that characterize the overall capitalization rate.
Step 5. It is estimated the net profit before tax and value of depreciation and interest deductions.
Step 6. The value obtained in the previous calculation of the shares in the consolidated rate, the rate of which is determined on the basis of information from the database of the enterprise.In the absence of such, or if they are insufficient, an alternative method by which the capitalization rate is determined.Real estate, which brings income to the enterprise as the subject of the calculation in this case is also excluded.Based on this alternative method of summing the sequential procedure.
Step 7. This is done by dividing the amount of net income and depreciation on the value of the total bet.The result is the full price of equity or venture company based on the value of borrowed funds.
It should be noted that, in the calculations, it was assumed that long-term debt was taken as part of the equity.Naturally, the calculation for the target firm will need to make the subtraction value of long-term debt from equity price index.
