Don’t be confused or intimidated by any terms or abbreviations in the M&A world. You’ll find answers here.
An earnings-based method of valuing a company by multiplying its earnings by an expected rate of return.
$200,000 annual earnings x 20.0% capitalization rate = $1,000,000 valuation.
A capitalization rate is the inverse of a multiple. A 20% capitalization rate equals a 5.0 multiple.
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