Capitalization of Earnings Assumptions

These options configure the Capitalization of Earnings worksheets. See Working with Assumptions.

Earnings Base

Determines the economic base that is capitalized. Configures the Benefit Stream worksheet. EBT is earnings before taxes, EBIT is earnings before interest and taxes, and EBITDA is earnings before interest, taxes, depreciation and amortization.

Historic or Adjusted Base

Selects the historic or adjusted financials to use as the base.

Debt Free (Invested Capital)

Adds interest expense back to the benefit stream, applies weighted average cost of capital (WACC) to the capitalization rate, and deducts debt from the indicated value.

Rate Calculation Method

Determines how the capitalization rate is calculated. ValuSource Pro supports two calculation methods, the Buildup Method and the Capital Asset Pricing Model (CAPM). You can select a rate or factor for each method. The only difference is presentation. The calculations are the same.

SBBI or D&P

Hides or shows the appropriate rows in the Capitalization Rate worksheet to match the equity risk premium data set. See SBBI and Duff and Phelps.

Which D&P Type

Enabled when the SBBI or D&P assumption (see above) is set to D&P Decile. Determines the rate type to apply from the Duff & Phelps data set: Excess of CAPM, or Arithmetic Mean.

Which D&P Size

Enabled when the SBBI or D&P assumption (see above) is set to D&P Decile. Determines the decile applied from the Duff & Phelps data set.

Capitalize Against

You can capitalize against the current benefit stream (Year 0) or against next year's (Year 1). The Ibbotson build up model produces a capitalization rate that is applied to next year's benefit stream. To apply the rate to the current year, the benefit stream is divided by one plus the growth rate.

Industry Risk

Applies a risk premium for the industry to the capitalization rate. You can download the risk premium from our SBBI Database.

Midyear Convention

Capitalizes the cash flows from the middle of the year. The mid-year cash flow is estimated by averaging the cash flows from the preceding year and the current year.

Level of Control

Applies a premium for control or a discount for lack of control in the indicated value calculation. The premium and discount are calculated in the Level of Control (Premium or Discount) worksheet. This assumption is enabled and disabled by the Application of Premiums, Discounts and Non-Operating/Excess Assets setting on the Project Assumptions sheet.

Marketability Discount

Applies a discount for lack of marketability in the indicated value calculation. The discount is calculated in the Marketability Discount worksheet. This assumption is enabled and disabled by the Application of Premiums, Discounts and Non-Operating/Excess Assets setting on the Project Assumptions sheet.

Excess/Non-Operating Assets

Includes excess and non-operating assets in the indicated value calculation. The value of the assets is calculated in the Excess and Non-Operating Assets worksheet. This assumption is enabled and disabled by the Application of Premiums, Discounts and Non-Operating/Excess Assets setting on the Project Assumptions sheet.

Level of Control for Excess/Non-Operating Assets

Applies the level of control premium or discount to the excess and non-operating assets in the indicated value calculation.

Disabled if the Level of Control assumption is set to No Premium or Discount.

Disabled if the Excess/Non-Operating Assets assumption is set to False.

Enabled and disabled by the Application of Premiums, Discounts and Non-Operating/Excess Assets setting on the Project Assumptions sheet.

Marketability Discount for Excess/Non-Operating Assets

Applies the marketability discount to the excess and non-operating assets in the indicated value calculation.

Disabled if the Marketability Discount assumption is set to False.

Disabled if the Excess/Non-Operating Assets assumption is set to False.

Enabled and disabled by the Application of Premiums, Discounts and Non-Operating/Excess Assets setting on the Project Assumptions sheet.

Rate Sensitivity

Determines if premiums and discounts are included in the values shown on the Rate Sensitivity worksheet.