Expert Chaslau Koniukh
  • Companies
  • Global investment
  • Investors
  • Terminology
  • Economy
  • Stock Market
  • World exchanges
  • Tech and Marketing
profit capitalization
Market terminology

Profit capitalization: features and functions

25.09.2020
2 min read

Profit capitalization: how to determine the value of the business and its prospects

Profit capitalization involves the use of income that has not been distributed as dividends. The concept can also characterize the method by which the value of a business is determined based on its ability to generate income.
Profit capitalization has two ways, which allow to reveal the potential of an enterprise due to reasonable investment of earned funds.
The first option is called real. It involves reinvesting both in fixed and current assets. More often than not, long-term investments are chosen.
The second way is marketing. In this case, the value of the company is increased thanks to intangible assets. This type of capitalization is becoming more and more popular, the reason for which is the increased importance of business reputation and the desire to influence the value of the company.
The basis of capitalization is the concepts of bet and odds. The rate assumes the ratio of net yield to asset price, the result is fixed as a percentage. This indicator shows the profitability of the enterprise as a whole, but it is not an independent determining factor. It is possible to say exactly about the level of success and profitability of the business only after analysis with similar data obtained by investing in other options.
The profit capitalization ratio takes into account the net income of the company and the amount of cash that is used to increase its value. This value depends on the policy of the company.

profit capitalization

To set the price of a business on the basis of its profitability, you need to know clearly the amount of capital that will allow you to get the right amount of capital with equal values of average loan interest and rates of return.
The company’s assessment is based on a number of factors:

  • business analysis, volume of revenue;
  • knowledge of the coefficient, which demonstrates the role of loan funds in the company’s turnover;
  • determination of the period when the calculation is made;
  • valuation of property.

This method is used only if the company has been observing this or that picture for a long time:

  • business will be at the same level of development and profitability.;
  • it will grow at almost the same rate.

In this situation the total value of the company will coincide with the value of its profitability, which is divided by the capitalization rate.
An important point is capital growth. When defining it, not only the equity capital of the business, but also credit funds are used. As a result, the role of the ratio increases, which shows the efficiency of borrowed money use. This factor consists of long-term and short-term amount of liabilities and equity capital of the enterprise. The higher the result of their ratio, the higher the risk for the entrepreneur. Such a business will not be of investment interest, as there is a high probability of not receiving money.

Tags: Market terminology
0
Previous Post PGNiG intends to reduce its dependence on Russian gas Next Post Dividend yield of Russian shares increases: VTB Capital Investments analysts

You Might Also Like

treasuries
Market terminology
What are treasuries: types and peculiarities
08.02.2023
barrier options
Market terminology
Barrier options as a type of non-traditional derivatives
16.06.2023
letter of credit
Market terminology
What is a letter of credit: features of the document
09.11.2023
types of market makers
Market terminology
Market makers as a key element of market functioning
17.04.2024
Commitments of Traders
Market terminology
Commitments of Traders indicator as a source of insight into the overall market picture
21.08.2023
Notion of deflation
Market terminology
The concept of deflation: causes and consequences
15.10.2020

Popular Posts

  • Ingeborg Mootz: a woman who became a stock player at the age of 75
  • Analysts: Egypt’s economy to continue falling in 2023
  • Businessman Chuck Feeney: the man who gave the world Duty Free
  • Field of activity of the American Monsanto Company Corporation

Editor's Picks

Chaslau Koniukh
Analytics

American bankers from JPMorgan and Goldman Sachs advise to invest in gold: review by Chaslau Koniukh.

Spokesperson
17.08.2020
Expert Chaslau Koniukh
Analytics

Chaslau Koniukh on the analysts’ opinion on the key stake size change soon

Spokesperson
18.06.2020
expert Chaslau Koniukh
Analytics

Chaslau Koniukh: Internet trade market in Russia may reach 2.78 trillion rubles.

Spokesperson
30.05.2020
Will the U.S. oil shale industry be able to quickly recover from the crisis: A Review by Chaslau Koniukh
Analytics

Will the U.S. oil shale industry be able to quickly recover from the crisis: A Review by Chaslau Koniukh

Spokesperson
16.05.2020

Popular Posts

  • Ingeborg Mootz: a woman who became a stock player at the age of 75
  • Analysts: Egypt’s economy to continue falling in 2023
  • Businessman Chuck Feeney: the man who gave the world Duty Free
  • Field of activity of the American Monsanto Company Corporation
  • Spain’s economy performs best in the EU
Expert Chaslau Koniukh
  • Facebook
  • Twitter
  • Instagram

© 2024 CHASLAU KONIUKH. ALL RIGHTS RESERVED. Expert in marketing and project management, international investments, financial analyst.

Menu

  • Biography
  • Companies and corporations
  • Global investment
  • Investors and Entrepreneurs
  • Economy
  • Market terminology
  • Stock Market
  • World exchanges
  • Tech and Marketing
  • Analytics