Enter the earnings and capitalization rate into the calculator to determine the value of the business. This calculator can also evaluate any of the variables given the others are known.

## Capitalization of Earnings Method Formula

The following formula is used to calculate the value of a business using the Capitalization of Earnings Method.

V = E / R

Variables:

• V is the value of the business ($) E is the earnings of the business ($) R is the capitalization rate (decimal)

To calculate the value of a business using the Capitalization of Earnings Method, divide the earnings of the business by the capitalization rate. The result is the estimated value of the business.

## What is a Capitalization of Earnings Method?

The Capitalization of Earnings Method is a valuation technique used to determine the value of a company or investment. It involves estimating the future profitability of a business and then determining its present value by using a suitable discount rate. This method is based on the assumption that a business is worth the present value of its future earnings. It is commonly used in the valuation of businesses with predictable and stable earnings, and it requires a deep understanding of a company’s financial performance and the industry in which it operates.

## How to Calculate Capitalization of Earnings Method?

The following steps outline how to calculate the Capitalization of Earnings using the formula: V = E / R.

1. First, determine the earnings of the business ($). 2. Next, determine the capitalization rate (decimal). 3. Next, gather the formula from above = V = E / R. 4. Finally, calculate the Capitalization of Earnings. 5. After inserting the variables and calculating the result, check your answer with the calculator above. Example Problem: Use the following variables as an example problem to test your knowledge. earnings of the business ($) = 5000

capitalization rate (decimal) = 0.08