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Beginning Business Valuation Barry Goodman CFA , ASA, CPA/ABV, CBA, CFP Advanced Valuation Analytics, Ltd. Capitalization Of Cash Flow Method. Estimate the capitalization rate. Estimate the cash flow capacity. Divide the cash flow capacity by the capitalization rate. Capitalization Rate.
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Beginning Business Valuation Barry Goodman CFA, ASA, CPA/ABV, CBA, CFP Advanced Valuation Analytics, Ltd.
Capitalization Of Cash Flow Method • Estimate the capitalization rate. • Estimate the cash flow capacity. • Divide the cash flow capacity by the capitalization rate.
Capitalization Rate • Factor, expressed in %, used to convert anticipated benefits into a current value • Considers interest rates, rates of return expected by the market, and risk of the anticipated benefits
Cash Flow Capacity • The company’s ability to produce profit • Looks at historical profit – not anticipated future profit • Estimation Methods • Most recent year • Mean or weighted average • Another way to estimate cash flow capacity- • Projected Year
Sources of Market Data • Publicly-traded stocks • Iba data base • Pratt’s stats • Done deals • Zweig’s valuation survey • Other specialized sources
Company Results • Net income • EBITDA • Cash flow • Owner’s discretionary cash flow • Revenue