Capitalization of Cash Flow Method
Simplified DCF approach that values stable businesses by capitalizing normalized cash flow using a single capitalization rate. Ideal for mature businesses with predictable earnings.
Explore Cap Rate MethodCalculation Method
Basic Formula
Business Value =
Normalized Cash Flow ÷ Capitalization Rate
Where Cap Rate =
Discount Rate - Growth Rate
Best For:
Stable, mature businesses
Method Evaluation
When to Use
- Stable, predictable cash flows
- Mature businesses with modest growth
- Simpler than full DCF analysis
Limitations
- Assumes constant growth rate
- Not suitable for high-growth companies
- Sensitive to cap rate selection
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