Simple Capitalized Earnings Business Valuation Model

Are you looking for a simple and efficient way to estimate the value of your business? Look no further! Download our Capitalized Earnings Spreadsheet Template today and unlock the power to do a simple business valuation. This is a simple one-page spreadsheet template in Excel designed to give you a quick answer to what a business might be worth by using the capitalized earnings valuation method.

The Capitalized Earnings valuation Method offers a simple way to quickly estimate the value of your business. This simple Excel spreadsheet template suggests using the 3 years of historic profits and correcting for one-time effects to obtain the level of normalized profits. A three-year average can then be used to estimate the sustainable profits after tax which then can be capitalized using a company’s discount rate and correct for eventual growth.

The capitalized earnings valuation method is simpler to apply than a full-scale Discounted Cash Flow (DCF) valuation since only three years of historic data are needed (instead of a minimum 5-year forecast such as the DCF method).

How does the Capitalized Earnings Valuation Method work?

The concept of the Weighted Average Cost of Capital (WACC) is used to calculate the estimated discount rate for the company.
We analyze 3 years of historic profits at the level of EBIT (Earnings before Interest and Taxes).
Each year of historic profits is corrected for extraordinary effects so that we can understand what EBIT would have resulted in without such effects (normalization of profits)
We then take a three-year average as a proxy for the expected level of sustainable profits going forward
We deduct pro-forma taxes on such profits at the company’s income tax rate to obtain the expected sustainable profits after tax (Normalized EBIT * (1-tax rate)) going forward
We then use the Gordon Growth model to estimate the company’s enterprise value by capitalizing the expected sustainable profits after tax by the company’s discount rate less growth rate (g). The corresponding formula would be: (EBIT / (WACC – g)
From the obtained enterprise value, we need to deduct, as per the specified valuation date and the company’s corresponding balance sheet, the financial debt and add cash and eventual non-operation assets.
This then results in the expected equity value of the business by using the capitalized earnings valuation method.

Please also refer to our article A Guide to Understanding Capitalized Earnings Valuation. Enjoy!

Why use this Simple Capitalized Earnings Valuation Template

Easy way to perform a quick business valuation
Only three years of historic data needed
One-page spreadsheet template
Charts included to better understand the business valuation result and its assumptions

Important to note, the capitalized earnings valuation method is more applicable to established businesses with a track record of steady earnings and fewer startups that might either show strong growth or are having years of losses.

Ready to do your own Capitalized Earnings Business Valuation?

What are you waiting for? This template is offered for FREE. Don’t miss out on this great opportunity to estimate the value of your business with our free Capitalized Earnings Valuation Method Template. Download the spreadsheet template now and find out how much your business is worth by using this simple way of performing a business valuation!

This template comes as an MS Excel spreadsheet template.

The current Model Version is 1.5.

The File Type is .xlsx

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