The capitalized dividend method
Posted: Wed Jan 08, 2025 3:58 am
The EBIT Value Method
This approach is based on the company's ability to generate earnings before interest and taxes. The reasoning behind this method is that EBIT is a good indicator of an bolivia phone data entity's operating profitability. It excludes, in fact, financial expenses and taxes that can vary depending on the company's financial structure and the country's tax system. To use this method, it is first necessary to calculate the average EBIT over a certain period, usually the last three to five years. Then, this average EBIT is multiplied by an appropriate multiple, which is derived from comparable companies in the same sector. Just like other methods based on multiples, the EBIT value method requires an appropriate selection of comparable companies and an accurate estimate of the multiple to be used.
The latter is primarily suitable for mature structures that regularly pay dividends to their shareholders. The capitalized dividend method assumes that the value of the company is determined by its ability to generate dividends for its shareholders in the future. Thus, the formula for this method is simple! It divides the expected annual dividend by the difference between the discount rate and the dividend growth rate. As with the DCF method, it is based on assumptions about future dividends and the discount rate. However, their precise estimation can be problematic.
As you will have understood, valuing a company is a complex process requiring an in-depth understanding of the different methods available, each with its own specificities. For an optimal evaluation, it is essential that managers can rely internally on employees who master one or more of these approaches, which can be acquired through a master's degree in financial engineering . So, don't wait any longer!
This approach is based on the company's ability to generate earnings before interest and taxes. The reasoning behind this method is that EBIT is a good indicator of an bolivia phone data entity's operating profitability. It excludes, in fact, financial expenses and taxes that can vary depending on the company's financial structure and the country's tax system. To use this method, it is first necessary to calculate the average EBIT over a certain period, usually the last three to five years. Then, this average EBIT is multiplied by an appropriate multiple, which is derived from comparable companies in the same sector. Just like other methods based on multiples, the EBIT value method requires an appropriate selection of comparable companies and an accurate estimate of the multiple to be used.
The latter is primarily suitable for mature structures that regularly pay dividends to their shareholders. The capitalized dividend method assumes that the value of the company is determined by its ability to generate dividends for its shareholders in the future. Thus, the formula for this method is simple! It divides the expected annual dividend by the difference between the discount rate and the dividend growth rate. As with the DCF method, it is based on assumptions about future dividends and the discount rate. However, their precise estimation can be problematic.
As you will have understood, valuing a company is a complex process requiring an in-depth understanding of the different methods available, each with its own specificities. For an optimal evaluation, it is essential that managers can rely internally on employees who master one or more of these approaches, which can be acquired through a master's degree in financial engineering . So, don't wait any longer!