The super profit and capitalization method is a valuation technique used in corporate accounting to estimate the value of a company based on its projected futur...
The super profit and capitalization method is a valuation technique used in corporate accounting to estimate the value of a company based on its projected future profits. The method involves the following steps:
Determine the company's projected future earnings over a period of several years, often 5 to 10.
Adjust the projected earnings for inflation to ensure they reflect the true value of money over time.
Adjust the projected earnings for growth to reflect the company's ability to increase its profits in the future.
Add back the cost of equity to the projected earnings to arrive at the company's intrinsic value.
Adjust the company's intrinsic value for its capital structure and risk, using methods such as the capital asset pricing model (CAPM).
Combine the intrinsic value with the company's cost of equity to determine the company's implied value.
The super profit and capitalization method is often used in conjunction with other valuation methods, such as the discounted cash flow (DCF) method, to arrive at a company's estimated value