Capitalization Rate


The rate of return based on the income that an investment generates.

See Also

Multiple, capitalization of earnings.


If the income from a $1,000,000 investment is $200,000 per year, then the capitalization rate is 20%, or $200,000/$1,000,000. A capitalization rate is the inverse of a multiple. The multiple in this case would be 5.0; or $1,000,000/$200,000 = 50.