Calculating the Capitalized Earnings Value

How high is the capitalized earnings value of the company under consideration? The capitalized earnings value corresponds to the sum of the individually calculated, discounted future earnings and the discounted perpetual annuity.

Example: In the previous example, the capitalized earnings value of the company under consideration is EUR 379 thousand + EUR 321 thousand, i.e. EUR 700 thousand.

The perpetual annuity and the discount rate have the greatest leverage on the capitalized earnings value. If we compare a company that is assumed to continue to perform sustainably in a stable market in the future, it will have a higher capitalized earnings value at a similar current performance than a company whose stable earnings situation in a volatile market cannot be forecast so clearly in the long term.

If it is doubtful whether a company will generate earnings in the future, it makes sense to also calculate the liquidation value as a basis for deciding how to proceed.


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